Notices. Altered systems of records, including proposed new routine use

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BILLING CODE 7710-FW-P SECURITIES AND EXCHANGE COMMISSION [Release No. IC-26776] Notice of Applications for Deregistration Under Section 8(f) of the Investment Company Act of 1940 February 25, 2005. The following is a notice of applications for deregistration under section 8(f) of the Investment Company Act of 1940 for the month of February, 2005. A copy of each application may be obtained for a fee at the SEC's Public Reference Branch, 450 Fifth St., NW., Washington, DC 20549-0102 (tel.

(202)942-8090). An order granting each application will be issued unless the SEC orders a hearing. Interested persons may request a hearing on any application by writing to the SEC's Secretary at the address below and serving the relevant applicant with a copy of the request, personally or by mail. Hearing requests should be received by the SEC by 5:30 p.m. on March 22, 2005, and should be accompanied by proof of service on the applicant, in the form of an affidavit or, for lawyers, a certificate of service. Hearing requests should state the nature of the writer's interest, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-0609. For Further Information Contact: Diane L. Titus at

(202)551-6810, SEC, Division of Investment Management, Office of Investment Company Regulation, 450 Fifth Street, NW., Washington, DC 20549-0504. Hilliard Lyons Growth Fund, Inc. [File No. 811-6423] *Summary:* Applicant seeks an order declaring that it has ceased to be an investment company. On November 5, 2004, applicant transferred its assets to Constellation HLAM Large Cap Quality Growth Fund, a series of Constellation Funds, based on net asset value. Expenses of $265,708 incurred in connection with the reorganization were paid by Hilliard Lyons Asset Management, applicant's investment adviser, and Constellation Investment Management company, LP, investment adviser to the acquiring fund. *Filing Dates:* The application was filed on January 5, 2005, and amended on February 18, 2005. *Applicant's Address:* Hilliard Lyons Center, Louisville, KY 40202. Credit Suisse Strategic Small Cap Fund, Inc. [File No. 811-10435] and Credit Suisse New York Tax Exempt Fund, Inc. [File No. 811-4170] *Summary:* Each applicant seeks an order declaring that it has ceased to be an investment company. On December 15, 2004, and January 6, 2005, respectively, applicants made a liquidating distribution to their shareholders, based on net asset value. Expenses of $15,000 and $50,000, respectively, incurred in connection with the liquidations were paid by Credit Suisse Asset Management, LLC, applicants' investment adviser, and/or its affiliates. *Filing Date:* The applications were filed on January 26, 2005. *Applicants' Address:* 466 Lexington Ave., New York, NY 10017. Nuveen Tax Exempt Unit Trust Series 1 [File No. 811-1015] *Summary:* Applicant, a unit investment trust, seeks an order declaring that it has ceased to be an investment company. On July 15, 2000, applicant made a final liquidating distribution to its shareholders, based on net asset value. Applicant incurred no expenses in connection with the liquidation. *Filing Date:* The application was filed on January 24, 2005. *Applicant's Address:* 333 West Wacker Dr., Chicago, IL 60606. Nuveen Tax Exempt Unit Trust Series 15 [File No. 811-1507]; Nuveen Tax Exempt Unit Trust Series 19 [File No. 811-1688]; Nuveen Tax Exempt Unit Trust Series 20 [File No. 811-1742]; Nuveen Tax Exempt Unit Trust Series 30 National Trust 30 [File No. 811-2096]; Nuveen Tax Exempt Unit Trust Series 32 National Trust 32 [File No. 811-2121]; Nuveen Tax Exempt Unit Trust Series 34 National Trust 34 [File No. 811-2160]; Nuveen Tax Exempt Unit Trust Series 35 National Trust 35 [File No. 811-2169]; Nuveen Tax Exempt Unit Trust Series 38 [File No. 811-2223]; and Nuveen Tax Exempt Unit Trust Series 39 National Trust 39 [File No. 811-2234] *Summary:* Each applicant, a unit investment trust, seeks an order declaring that it has ceased to be an investment company. Between August 15, 1999 and May 15, 2001, each applicant made a final liquidating distribution to its shareholders, based on net asset value. Applicants incurred no expenses in connection with the liquidations. *Filing Date:* The applications were filed on January 25, 2005. *Applicants' Address:* 333 West Wacker Dr., Chicago, IL 60606. Touchstone Series Trust [File No. 811-8380] *Summary:* Applicant seeks an order declaring that it has ceased to be an investment company. On April 28, 2000, three of applicant's series made a liquidating distribution to their shareholders, based on net asset value. On May 1, 2000, applicant's remaining series transferred their assets to corresponding series of Touchstone Strategic Trust and Touchstone Investment Trust, based on net asset value. Expenses of $375,000 incurred in connection with the reorganization were paid by Touchstone Advisors, Inc., applicant's investment adviser. *Filing Dates:* The application was filed on December 9, 2004, and amended on February 9, 2005. *Applicant's Address:* 221 East Fourth St., Suite 300, Cincinnati, OH 45202. Arden Registered Institutional Advisers, L.L.C. [File No. 811-21307] *Summary:* Applicant, a closed-end investment company, seeks an order declaring that it has ceased to be an investment company. Applicant has never made a public offering of its securities and does not propose to make a public offering or engage in business of any kind. *Filing Dates:* The application was filed on January 12, 2005, and amended on February 4, 2005. *Applicant's Address:* 350 Park Ave., 29th Floor, New York, NY 10022. Nuveen Florida Dividend Advantage Municipal Fund [File No. 811-9467]; Nuveen Missouri Dividend Advantage Municipal Bond Fund [File No. 811-10195]; Nuveen California Dividend Advantage Municipal Fund 4 [File No. 811-10545]; Nuveen Dividend Advantage Municipal Fund 4 [File No. 811-10547]; Nuveen Pennsylvania Dividend Advantage Municipal Fund 3 [File No. 811-21150]; Nuveen New Jersey Dividend Advantage Municipal Fund 3 [File No. 811-21151]; Nuveen Michigan Dividend Advantage Municipal Fund 2 [File No. 811-21156]; Nuveen Colorado Dividend Advantage Municipal Fund [File No. 811-21159]; Nuveen Insured PA Tax Free Advantage Municipal Fund [File No. 811-21243]; Nuveen Insured NJ Tax Free Advantage Municipal Fund [File No. 811-21244]; Nuveen Insured Michigan Tax-Free Advantage Municipal Fund [File No. 811-21245]; Nuveen Insured New York Tax Free Advantage Municipal Fund 2 [File No. 811-21302]; Nuveen Insured Tax-Free Advantage Municipal Fund 2 [File No. 811-21303]; and Nuveen Insured CA Tax Free Advantage Municipal Fund 2 [File No. 811-21304] *Summary:* Each applicant, a closed-end investment company, seeks an order declaring that it has ceased to be an investment company. Applicants have never made a public offering of their securities and do not propose to make a public offering or engage in business of any kind. *Filing Dates:* The applications were filed on December 8, 2004, and amended on January 28, 2005. *Applicants' Address:* 333 West Wacker Dr., Chicago, IL 60606. Phoenix Trust [File No. 811-4116] *Summary:* Applicant seeks an order declaring that it has ceased to be an investment company. On April 16, 2004, each of applicant's three series transferred its assets to Phoenix Investment Trust 97, Phoenix-Oakhurst Strategic Allocation Fund or Phoenix Equity Series Fund, based on net asset value. Expenses of $31,824 incurred in connection with the reorganization were paid by Phoenix Investment Partners, Ltd., investment adviser for applicant and the acquiring fund. Filing Dates: The application was filed on December 1, 2004, and amended on January 28, 2005. *Applicant's Address:* 56 Prospect St., PO Box 150480, Hartford, CT 06115-0480. American Municipal Term Trust Inc. III [File No. 811-6516] *Summary:* Applicant, a closed-end investment company, seeks an order declaring that it has ceased to be an investment company. On April 10, 2003, applicant made a liquidating distribution to its shareholders, based on net asset value. Prior to the liquidation date, applicant's preferred stock was redeemed at its liquidation preference, plus accumulated but unpaid dividends through the redemption date. Expenses of $4,801 incurred in connection with the liquidation were paid by applicant and U.S. Bancorp Asset Management, Inc., applicant's investment adviser. *Filing Dates:* The application was filed on December 29, 2004, and amended on January 27, 2005. *Applicant's Address:* U.S. Bancorp Asset Management, Inc., 800 Nicollet Mall, Minneapolis, MN 55402. Lindbergh Funds [File No. 811-9437] *Summary:* Applicant seeks an order declaring that it has ceased to be an investment company. On January 20, 2005, applicant made a final liquidating distribution to its shareholders, based on net asset value. Expenses of $3,200 incurred in connection with the liquidation were paid by Lindbergh Capital Management, applicant's investment adviser. *Filing Date:* The application was filed on February 3, 2005. *Applicant's Address:* 5520 Telegraph Rd., #204, St. Louis, MO 63129. TCW Premier Funds [File No. 811-21164] *Summary:* Applicant seeks an order declaring that it has ceased to be an investment company. Applicant has never made a public offering of its securities and does not propose to make a public offering or engage in business of any kind. *Filing Dates:* The application was filed on December 1, 2004, and amended on January 18, 2005, and February 9, 2005. *Applicant's Address:* 865 South Figueroa St., Suite 1800, Los Angeles, CA 90017. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-851 Filed 3-2-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 35-27948] Filings Under the Public Utility Holding Company Act of 1935, as Amended (“Act”) February 25, 2005. Notice is hereby given that the following filing(s) has/have been made with the Commission under provisions of the Act and rules promulgated under the Act. All interested persons are referred to the application(s) and/or declaration(s) for complete statements of the proposed transaction(s) summarized below. The application(s) and/or declaration(s) and any amendment(s) is/are available for public inspection through the Commission's Branch of Public Reference. Interested persons wishing to comment or request a hearing on the application(s) and/or declaration(s) should submit their views in writing by March 22, 2005, to the Secretary, Securities and Exchange Commission, Washington, DC 20549-0609, and serve a copy on the relevant applicant(s) and/or declarant(s) at the address(es) specified below. Proof of service (by affidavit or, in the case of an attorney at law, by certificate) should be filed with the request. Any request for hearing should identify specifically the issues of facts or law that are disputed. A person who so requests will be notified of any hearing, if ordered, and will receive a copy of any notice or order issued in the matter. After March 22, 2005, the application(s) and/or declaration(s), as filed or as amended, may be granted and/or permitted to become effective. American Electric Power Company, Inc. (70-10283) Order Authorizing Solicitation of Proxies; Notice of Request To Distribute Securities Under Proposed Amended and Restated American Electric Power System 2000 Long-Term Incentive Plan American Electric Power Company, Inc. (“AEP”), 1 Riverside Plaza, Columbus, Ohio, 43215, a registered holding company has filed a declaration (“Declaration”) under sections 6(a), 7 and 12(e) of the Act and rules 23, 42, 54, 62 and 65 under the Act. I. Requested Authority AEP requests authority to:

(1)Solicit proxies with respect to the Amended and Restated American Electric Power System 2000 Long-Term Incentive Plan (“Plan”) from the holders of its outstanding common stock for action at the annual meeting of AEP's shareholders scheduled to be held on April 26, 2005; and

(2)issue securities under the Plan, if it is approved by shareholders, including up to 19,200,000 shares of common stock (“Common Stock”). II. Order for Solicitation of Proxies AEP has requested that an order be issued authorizing commencement of the solicitation of proxies from the holders of the outstanding shares of its common stock with respect to the Plan. AEP is authorized to issue up to 15,700,000 shares of common stock under the current Long-Term Incentive Plan (“Current Plan”). AEP has issued all but 3,754,150 shares of common stock under the Current Plan. AEP shareholders will be asked to approve the following amendments to the Current Plan:

(1)The provision of an additional 15,445,850 shares of Common Stock for awards (which when added to the 3,754,150 shares still available for issuance under the Current Plan establishes a new limit of 19,200,000 shares of Common Stock that will be available for issuance under the Plan);

(2)an increase in the maximum number of options and stock appreciation rights that may be awarded to a participant during any three calendar year period from 1,650,000 to 2,000,000;

(3)an increase in the maximum number of restricted shares that may be awarded to a participant during any one calendar year from 330,000 to 400,000;

(4)an increase in the maximum amount of compensation that may be payable to a participant during any one calendar year under a performance-based award from $8,260,000 to $15,000,000;

(5)an increase in the maximum number of performance share units that may be earned by a participant during any one calendar year from 330,000 to 400,000; and

(6)revised performance criteria. AEP states that the Plan is designed to allow for the grant of certain types of awards that conform to the requirements for tax deductible “performance-based” compensation under Section 162(m) of the Internal Revenue Code (“Code”). Shareholder approval of the Plan is needed in order to maximize the deductibility of the payments under the Plan to AEP's chief executive officer and other four most highly compensated officers under the provisions of Section 162(m), and to comply with the requirements of the regulations issued by the Internal Revenue Service governing the deductibility of individual compensation amounts in excess of $1,000,000. Approval of the proposed amendments will require the affirmative vote of a majority of the votes cast at the annual meeting. III. Description of the Plan and Securities Issuable Under the Plan A. Purpose of Plan The purpose of the Plan is to promote the interests of AEP and its shareholders by strengthening AEP's ability to attract, motivate and retain employees and directors, to align further the interests of AEP's management with the shareholders, and to provide an additional incentive for employees and directors to promote the financial success and growth of AEP. The Plan provides for the grant of stock options, including incentive stock options and nonqualified stock options, stock appreciation rights, restricted stock, performance share awards, phantom stock, and dividend equivalents to employees and non-employee Directors. B. Reservation of Shares and Administration of the Plan The Common Stock that will be issuable under the Plan will be made available from authorized but unissued shares and/or shares reacquired by AEP. If any shares of Common Stock awarded under the Plan are not issued and cease to be issuable for any reason, the shares will no longer be charged against the maximum share limitation and may again be made subject to awards under the Plan. If certain corporate reorganizations, recapitalizations, or any similar corporate transactions affecting AEP or the Common Stock, or stock splits, stock dividends or other distribution with respect to the Common Stock occur, proportionate adjustments may be made to the number of shares available for grant under the Plan, the applicable maximum share limitations under the Plan, and the number of shares and prices under outstanding awards at the time of the event. The Plan will be administered by the Human Resources Committee of AEP's Board of Directors (“Committee”). However, for awards granted to non-employee Directors, all rights, powers and authorities vested in the Committee under the Plan will be instead exercised by the Board. Subject to limitations set forth in the Plan, the Committee has the authority to determine the persons to whom awards are granted, the type, timing, vesting and duration of the awards, the number of shares, units or other rights awarded and the exercise, base or purchase price of an award. The Plan has no fixed expiration date, but no awards may be granted after April 26, 2015. The Board may amend the Plan, except that shareholder approval is required for amendments that would either:

(1)Increase the number of shares of Common Stock reserved for issuance under the Plan; or

(2)allow the grant of options at an exercise price below fair market value or allow the repricing of options. C. Stock Options The Plan authorizes the grant of nonqualified and incentive stock options. Nonqualified stock options may be granted to employees and non-employee Directors, but incentive stock options may only be granted to employees. The exercise price of an option may be determined by the Committee, provided that the exercise price per share of an option may not be less than 100% of the fair market value of a share of Common Stock on the date of grant. The exercise price of an option is payable by the participant in cash, or at the discretion of the Committee, in shares of Common Stock, or by any other method approved by the Committee. The terms of any Incentive Stock Option shall comply with the provisions of the Code. The maximum number of shares of Common Stock that may be granted under stock options to any one participant during any three calendar year period shall be limited to 2 million shares. D. Stock Appreciation Rights A stock appreciation right entitles the holder, upon exercise, to receive a payment based on the difference between the base price of the stock appreciation right and the fair market value of a share of Common Stock on the date of exercise, multiplied by the number of shares as to which the stock appreciation right will have been exercised. A stock appreciation right may be granted either separately or in tandem with an option. If the stock appreciation right is granted in tandem with an option it will have a base price per share equal to the per share exercise price of the option, will be exercisable only at the same time the related option is exercisable, and will expire no later than when the related option expires. Exercise of the option or the stock appreciation right results in the cancellation of the same number of shares under the tandem right. A stock appreciation right granted without relationship to an option will be exercisable as determined by the Committee. The base price assigned to a stock appreciation right granted without relationship to an option shall not be less than 100% of the fair market value of a share of Common Stock on the date of grant. The maximum number of shares of Common Stock that may be subject to stock appreciation rights granted to any one participant during any three calendar year period shall be limited to 2,000,000 shares. Stock appreciation rights are payable in cash, restricted or unrestricted shares of Common Stock, or a combination thereof, in the discretion of the Committee. E. Performance Awards Performance awards are units denominated in shares of Common Stock or specified dollar amounts (“Performance Units”). Performance awards are payable upon the achievement of performance criteria established by the Committee at the beginning of the performance period. At the time of grant, the Committee establishes the number of units, the duration of the performance period, the applicable performance criteria, and in the case of Performance Units, the target unit value or range of unit values for the award. Performance awards are payable in cash, restricted or unrestricted shares of Common Stock, phantom stock or options, or a combination thereof, in the discretion of the Committee. The maximum amount of compensation that may be payable in any one calendar year to any one participant designated to receive an award intended to qualify under Section 162(m) of the Code is $15,000,000. The maximum number of performance share units that may be earned in any one calendar year by any one participant intended to qualify under Section 162(m) of the Code is 400,000 units. F. Restricted Stock An award of restricted stock represents shares of Common Stock that are issued subject to restrictions on transfer and on incidents of ownership and to forfeiture upon the occurrence of certain events deemed appropriate by the Committee. The Committee may, in connection with an award of restricted stock, require the payment of a specified purchase price. During the period of restriction, the participant will have the rights of a shareholder of AEP, including all voting and dividend rights, unless otherwise determined by the Committee. The maximum number of shares of Common Stock that may be subject to restricted stock awards intended to qualify under Section 162(m) of the Code granted to any one participant during any calendar year is limited to 400,000 shares. G. Phantom Stock An award of phantom stock gives the participant the right to receive payment at the end of a fixed vesting period based on the value of a share of Common Stock at the time of vesting. Phantom stock units are subject to restrictions and conditions to payment as the Committee determines are appropriate. An award of phantom stock may be granted, at the discretion of the Committee, together with an award of dividend equivalent rights for the same number of shares. Phantom stock awards are payable in cash, restricted or unrestricted shares of Common Stock, options or a combination thereof. H. Dividend Equivalents Dividend equivalent awards entitle the holder to a right to receive cash, shares of Common Stock, or other property equal in value to dividends paid with respect to a specified number of shares of Common Stock. Dividend equivalents may be awarded on a free-standing basis or in connection with another award, and may be paid currently or on a deferred basis. The Committee may provide that the dividend equivalent award shall be paid when accrued or shall be deemed to have been reinvested in additional shares of Common Stock or other investment vehicles as the Committee may specify, provided that dividend equivalent awards (other than free-standing dividend equivalent awards) shall be subject to all conditions and restrictions of the underlying awards to which they relate. IV. Rule 54 Analysis The proposed transactions are subject to rule 54. Rule 54 provides that, in determining whether to approve the issue or sale of any securities for purposes other than the acquisition of any “exempt wholesale generator” (“EWG”) or “foreign utility company” (“FUCO”) or other transactions unrelated to EWGs or FUCOs, the Commission shall not consider the effect of the capitalization or earnings of subsidiaries of a registered holding company that are EWGs or FUCOs if the requirements of Rule 53(a),

(b)and

(c)are satisfied. Under rule 53(a), the Commission shall not make certain specified findings under Section 7 and 12 of the Act in connection with a proposal by a holding company to issue securities for the purpose of acquiring the securities of, or other interest in, an EWG or to guarantee the securities of an EWG, if each of the conditions in paragraphs (a)(1) through (a)(4) are met, provided that none of the conditions specified in paragraph (b)(1) through (b)(3) of rule 53 exists. AEP currently meets all of the conditions of rule 53(a). At September 30, 2004, AEP's “aggregate investment,” as defined in rule 53(a)(1), in EWGs and FUCOs was approximately $332 million or about 19.9% of AEP's “consolidated retained earnings,” also as defined in rule 53(a)(1), for the four quarters ended September 30, 2004 ($1.675 billion). 1 1 With respect to rule 53(a)(1), however, the Commission has determined that AEP's financing of investments in EWGs and FUCOs in an amount greater than the amount that would otherwise be allowed by rule 53(a)(1) would not have either of the adverse effects set forth in rule 53(c). By order dated June 14, 2000 (Holding Company Act Release No. 27186), the Commission authorized AEP to invest up to 100% of its consolidated retained earnings, with consolidated retained earnings to be calculated on the basis of the combined consolidated retained earnings of AEP and Central and South West Corporation (“CSW”)(“Rule 53(c) Order”). The Rule 53(c) Order also authorized the merger of AEP and CSW. AEP has complied and will continue to comply with the record-keeping requirements of rule 53(a)(2), the limitation under rule 53(a)(3) on the use of operating company personnel to render services to EWGs and FUCOs, and the requirements of rule 53(a)(4) concerning the submission of copies of certain filings under the Act to retail rate regulatory commissions. Further, none of the circumstances described in rule 53(b)(1) or

(3)has occurred or is continuing. AEP states that it meets the requirements of Rule 53(c). The circumstances described in rule 53(b)(2) have occurred. As a result of the recording of a loss with respect to impairment charges, 2 AEP's consolidated retained earnings declined. The average consolidated retained earnings of AEP for the four quarterly periods ended September 30, 2004, was $1.695 billion, or a decrease of approximately 24.8% from AEP's average consolidated retained earnings for the four quarterly periods ended September 30, 2003, of $2.226 billion. In addition, AEP's “aggregate investment” in EWGs and FUCOs as of September 30, 2004, exceeded 2% of the total capital invested in utility operations. 2 In the fourth quarter of 2003 AEP recorded pre-tax impairments of assets (including goodwill) and investments totaling $1.4 billion that reflected downturns in energy trading markets, projected long-term decreases in electricity prices, and other factors. The impairments consisted of $650 million related to asset impairments, $70 million related to investment value and other impairment losses, and $711 million related to discontinued operations. Of the discontinued operations, $577 million was attributable to the impairment of the fixed-asset carrying value of AEP's two coal-fired generation plants in the United Kingdom. AEP recorded a pre-tax impairment of $70 million on certain qualifying facilities as defined under the Public Utility Regulatory Policies Act of 1978, as amended in the third quarter of 2003. AEP states that if the effect of the capitalization and earnings of its EWGs and FUCOs upon its holding company system were considered, there would be no basis for the Commission to withhold or deny approval for the authority sought in the Declaration. AEP states that the proposed transactions would not, by themselves or even considered in conjunction with the effect of the capitalization and earnings of AEP's EWGs and FUCOs, have a material adverse effect on the financial integrity of the AEP system, or an adverse impact on AEP's utility subsidiaries, 3 their customers or the ability of state commissions to protect the public utility customers. The Rule 53(c) Order was predicated, in part, upon an assessment of AEP's overall financial condition which took into account, among other factors, AEP's consolidated capitalization ratio and the growth trend in AEP's retained earnings. 3 AEP's utility subsidiaries are: Appalachian Power Company, Columbus Southern Power Company, Indiana Michigan Power Company, Kentucky Power Company, Ohio Power Company, AEP Texas Central Company, Public Service Company of Oklahoma, Southwestern Electric Power Company, and AEP Texas North Company (collectively, “Utility Subsidiaries”). Since the date of the Rule 53(c) Order, there has been an increase in AEP's consolidated equity capitalization ratio. As of December 31, 1999, the most recent period for which financial statement information was evaluated in the Rule 53(c) Order, AEP's consolidated capitalization (including CSW on a pro forma basis) consisted of 61.3% debt, 37.3% common and preferred equity, and 1.4% of certain subsidiary obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated debentures of the subsidiaries (or $335 million principal amount). However, as of September 30, 2004, AEP's consolidated capitalization consisted of 60.4% debt, and 39.6% common and preferred equity (consisting of common stock representing 39%, and preferred stock representing 0.6% (or $133 million principal amount). In addition, the Utility Subsidiaries, which will have a significant influence on the determination of the AEP corporate rating, continue to show strong financial statistics as measured by the rating agencies. As of December 31, 1999 and September 30, 2004 Standard and Poor's (“S&P”) rating of secured debt for AEP's Utility Subsidiaries was as follows: 12 / 31 / 99 9 / 30 / 04 Appalachian Power Company A BBB Columbus Southern Power Company A− BBB Indiana Michigan Power Company A− BBB Kentucky Power Company A BBB Ohio Power Company A− BBB AEP Texas Central Company A BBB Public Service Company of Oklahoma AA− BBB Southwestern Electric Power Company AA− BBB AEP Texas North Company A BBB AEP did not have a long-term debt rating as of December 31, 1999. As of September 30, 2004, S&P's rating of AEP's unsecured debt was BBB. V. Conclusion AEP states that no State or other Federal regulatory authority has jurisdiction over the proposed transactions. AEP states that the fees, commissions and expenses to be paid or incurred directly or indirectly, by it in connection with the proposed transactions are estimated to be as follows, except as otherwise indicated: Printing Costs $75,000 Transfer Agent and Brokerage Fees and Expenses 1 450,000 Estimated Commission Filing Fee Related to 1933 Act Registration 80,000 Total $605,000 1 This represents the total amount of expenses that AEP estimates it will incur in connection with the solicitation of proxies for the 2005 annual meeting, including with respect to the Plan. AEP states that it does not have enough data to make a reasonable estimate of the incremental costs associated with the solicitation of proxies in regard to the Plan, but believes that the incremental costs would not represent more than approximately 10% of the estimated amounts indicated. Other expenses for legal, financial, accounting, and clerical services will be billed at cost by the American Electric Power Service Corporation. These expenses are estimated not to exceed $5,000. In addition, if AEP considers it desirable to do so it may employ professional proxy solicitors for additional fees estimated not to exceed $92,000. It appears to the Commission that AEP's Declaration regarding the proposed solicitation of proxies should be permitted to become effective immediately under rule 62(d). *It is ordered,* under rule 62 of the Act, that the Declaration regarding the proposed solicitation of proxies from the holders of outstanding shares of AEP Common Stock become effective immediately, subject to the terms and conditions of rule 24 under the Act. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-853 Filed 3-2-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51246; File No. SR-Amex-2005-11] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment Nos. 1, 2, 3, and 4 Thereto by the American Stock Exchange LLC To Adopt Obvious Error Rules for Options Transactions February 24, 2005. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on January 18, 2005, the American Stock Exchange LLC (“Amex” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in items I and II below, which items have been prepared by the Exchange. The proposed rule change has been filed by Amex as a “non-controversial” rule change pursuant to section 19(b)(3)(A) of the Act 3 and Rule 19b-4(f)(6) thereunder. 4 On January 24, 2005, Amex submitted Amendment No. 1 to the proposed rule change. 5 On January 26, 2005, Amex submitted Amendment No. 2 to the proposed rule change. 6 On February 3, 2005, Amex submitted Amendment No. 3 to the proposed rule change. 7 On February 24, 2005, Amex submitted Amendment No. 4 to the proposed rule change. 8 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b-4(f)(6). 5 Amendment No. 1 superseded and replaced the original proposed rule change in its entirety. 6 Amendment No. 2 superseded and replaced the original proposed rule change and Amendment No. 1 in their entirety. 7 Amendment No. 3 superseded and replaced the original proposed rule change, Amendment No. 1, and Amendment No. 2 in their entirety. 8 In Amendment No. 4, Amex replaced the term “control room” with “Exchange's Service Desk” in paragraph (b)(2) of proposed Amex Rule 936C and paragraph (b)(2) of Amex Rule 936C—ANTE. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change Amex proposes to adopt new Amex Rules 936, 936C, 936-ANTE, and 936C-ANTE to provide for the cancellation and adjustment of options transactions resulting from obvious errors. The proposed rule text is set forth below. 9 Additions are italicized. Deletions are bracketed. 9 The proposed rule text below contains technical corrections as follows:

(1)capitalize the word “Official” in proposed Amex Rule 936, Commentary .03;

(2)change the abbreviation “EST” to “ET” in proposed Amex Rule 936C—ANTE (a)(6) and (b)(1), and the purpose section; and

(3)make typographical corrections to proposed Amex Rules 936, 936—ANTE, 936C, and 936C—ANTE. Telephone conversations between Claire P. McGrath, Senior Vice President and General Counsel, Amex, and Frank N. Genco, Special Counsel, Division of Market Regulation, Commission, on February 9, 2005; and Jeffrey Burns, Associate General Counsel, Amex, and Frank N. Genco, Special Counsel, Division of Market Regulation, Commission, on February 9, 2005. Rule 950. Rules of General Applicability

(a)The following Floor Rules shall apply to Exchange option transactions and other transactions on the Exchange in options contracts: 100, 101, 104, 105, 106, 110, 112, 117, 123, 129, 130, [135,] 150, 151, 152, 153, 155, 157, 172, 173, 174, 175, 176, 177, 180, 181, 183, 184, 185, 192 and 193. Unless the context otherwise requires, the term “stock” wherever used in the foregoing Rules shall be deemed to include option contracts. Except as otherwise provided in this Rule, all other Floor Rules (series 100 *et seq.* ) shall not be applicable to Exchange option transactions. (b)-(n). No Change Rule 936. Cancellation and Adjustment of Equity Options Transactions *This Rule governs the cancellation and adjustment of transactions involving equity options. Rules 936C and 936C-ANTE govern the cancellation and adjustment of transactions involving options on indexes, exchange-traded funds (“ETFs”) and trust issued receipts (“TIRs”). Paragraphs (a)(1) and

(2)of this Rule have no applicability to trades executed in open outcry.

(a)Trades Subject to Review. A member or person associated with a member may have a trade cancelled or adjusted if, in addition to satisfying the procedural requirements of paragraph

(b)below, one of the following conditions is satisfied:* *(1) Obvious Price Error. An obvious pricing error occurs when the execution price of an electronic transaction is above or below the Theoretical Price for the series by an amount equal to at least the amount shown below:* *Theoretical price* *Minimum amount* *Below $2* *$0.25* *$2 to $5* *0.40* *Above $5 to $10* *0.50* *Above $10 to $20* *0.80* *Above $20* *1.00* * Definition of Theoretical Price. For purposes of this Rule only, the Theoretical Price of an option series is, for series traded on at least one other options exchange, the last bid price with respect to an erroneous sell transaction and the last offer price with respect to an erroneous buy transaction, just prior to the trade, disseminated by the competing options exchange that has the most liquidity in that option class in the previous two calendar months. If there are no quotes for comparison, designated Trading Officials will determine the Theoretical Price. For transactions occurring as part of an opening, the Theoretical Price shall be the first quote after the transaction(s) in question that does not reflect the erroneous transaction(s). * *(i) Cancellation or Price Adjustment. Obvious Pricing Errors will be cancelled or adjusted as follows.* • *Transactions Between Amex specialists/registered options traders (ROTs): Where both parties to the transaction are Amex specialists/ROTs, the execution price of the transaction will be adjusted by Trading Officials to the prices provided in Paragraphs

(A)and

(B)below, minus

(plus)an adjustment penalty (“adjustment penalty”), unless both parties agree to adjust the transaction to a different price or agree to cancel the trade within fifteen

(15)minutes of being notified by Trading Officials of the Obvious Error.* *(A) Erroneous buy transactions will be adjusted to their Theoretical Price plus an adjustment penalty of either $.15 if the Theoretical Price is under $3 or $.30 if the Theoretical Price is at or above $3.* *(B) Erroneous sell transactions will be adjusted to their Theoretical Price minus an adjustment penalty of either $.15 if the Theoretical Price is under $3 or $.30 if the Theoretical Price is at or above $3.* • *Transactions Involving at least one non-Amex specialist/ROT: Where one of the parties to the transaction is not an Amex specialist/ROT, the transactions will be cancelled by Trading Officials unless both parties agree to an adjustment price for the transaction within thirty

(30)minutes of being notified by Trading Officials of the Obvious Error.* *(2) No Bid Series. Electronic transactions in series quoted no bid at a nickel (i.e., $0.05 offer) will be cancelled provided at least one strike price below (for calls) or above (for puts) in the same options class was quoted no bid at a nickel at the time of execution.* *(3) Verifiable Disruptions or Malfunctions of Exchange Systems. Electronic or open outcry transactions arising out of a “verifiable disruption or malfunction” in the use or operation of any Exchange

(a)automated quotation, dissemination, execution, or communication system that caused a quote/order to trade in excess of its disseminated size (e.g., a quote/order that is frozen because of an Exchange system error and is repeatedly traded) in which case trades in excess of the disseminated size may be nullified; or

(b)automated quotation, dissemination or communication system that prevented a member from updating or canceling a quote/order for which the member is responsible, provided there is Exchange documentation reflecting that the member sought to update or cancel the quote/order. With respect to verifiable disruptions or malfunctions of the Exchange's automated quotation system, documentation of the existence of the disruption or malfunction will be sufficient provided the automated quotation system was programmed to update or cancel a quote based upon specific changes in the underlying, those changes occurred and due to the disruption or malfunction the quote was not updated or cancelled. Transactions that qualify for price adjustment will be adjusted to the Theoretical Price, as defined in paragraph (a)(1) above.* *(4) Erroneous Print in Underlying. A trade resulting from an erroneous print disseminated by the underlying market which is later cancelled or corrected by that underlying market may be cancelled. In order to be cancelled, however, the trade must be the result of an erroneous print that is higher or lower than the average trade in the underlying security during a two minute period before and after the erroneous print by an amount at least five times greater than the average quote width for such underlying security during the same period. For purposes of this Rule, the average trade in the underlying security shall be determined by adding the prices of each trade during the four minute time period referenced above (excluding the trade in question) and dividing by the number of trades during such time period (excluding the trade in question). For purposes of this Rule, the average quote width shall be determined by adding the quote widths of each separate quote during the four minute time period referenced above (excluding the quote in question) and dividing by the number of quotes during such time period (excluding the quote in question).* *(5) Erroneous Quote in Underlying. Electronic trades (this provision does not apply to trades executed in open outcry) resulting from an erroneous quote in the underlying security may be adjusted or canceled as set forth in paragraph (a)(1) above. An erroneous quote occurs when the underlying security has a width of at least $1.00 and has a width at least five times greater than the average quote width for such underlying security on the primary market (as defined in Rule 900 (b)(26)) during the time period encompassing two minutes before and after the dissemination of such quote. For purposes of this Rule, the average quote width shall be determined by adding the quote widths of each separate quote during the four minute time period referenced above (excluding the quote in question) and dividing the number of quotes during such time period (excluding the quote in question).*

(b)Procedures for Reviewing Transactions *(1) Notification. Any member or person associated with a member that believes it participated in a transaction that may be cancelled or adjusted in accordance with paragraph

(a)must notify any Trading Official promptly but not later than fifteen

(15)minutes after the execution in question. Absent unusual circumstances, Trading Officials shall not grant relief under this Rule unless notification is made within the prescribed time periods. In the absence of unusual circumstances, Trading Officials (either on their own motion or upon request of a member) must initiate action pursuant to paragraph (a)(3) above within sixty

(60)minutes of the occurrence of the verifiable disruption or malfunction. When Trading Officials take action pursuant to paragraph (a)(3), the members involved in the transaction(s) shall receive verbal notification as soon as is practicable.* *(2) Review and Determination. Once a party to a transaction has applied to a Trading Official for review, the transaction shall be reviewed and a determination rendered, unless both parties to the transaction agree to withdraw the application for review prior to the time a decision is rendered. Absent unusual circumstances (e.g., a large number of disputed transactions arising out of the same incident), Trading Officials must render a determination within sixty

(60)minutes of receiving notification pursuant to paragraph (b)(1) above. Trading Officials shall promptly provide verbal notification of a determination to the members involved in the disputed transaction and to the Exchange's Service Desk.*

(c)Obvious Error Panel *(1) Composition. An Obvious Error Panel will be comprised of at least one

(1)member of the Regulatory staff and four

(2)Scope of Review. If a party affected by a determination made under this Rule so requests within the time permitted in paragraph (b), an Obvious Error Panel will review decisions made by the Trading Officials under this Rule, including whether an obvious error occurred, whether the correct Theoretical Price was used, and whether the correct adjustment was made at the correct price. A party may also request that the Obvious Error Panel provide relief as required in this Rule in cases where the party failed to provide the notification required in paragraph

(b)and the Trading Officials declined to grant an extension, but unusual circumstances must merit special consideration. * *(3) Procedure for Requesting Review. A request for review must be made in writing within

(30)minutes after a party receives verbal notification of a final determination by the Trading Officials under this Rule, except that if notification is made after 3:30 p.m. Eastern Time (“ET”), either party has until 9:30 a.m. ET the next trading day to request review. The Obvious Error Panel shall review the facts and render a decision on the day of the transaction, or the next trade day in the case where a request is properly made the next trade day.* *(4) Panel Decision. The Obvious Error Panel may overturn or modify an action taken by the Trading Officials under this Rule upon agreement by a majority of the Panel representatives. All determinations by the Obvious Error Panel may be appealed in accordance with paragraph

(d)of this rule.* *(d) Review of Rulings. A member affected by a determination made under this rule may appeal such determination to a Review Panel of at least three

(ETFs)and trust issued receipts (TIRs). Rule 936 governs the cancellation and adjustment of transactions involving equity options. Paragraphs (a)(1), (2),

(6)and

(7)of this Rule have no applicability to trades executed in open outcry.*

(a)Trades Subject To Review *A member or person associated with a member may have a trade cancelled or adjusted if, in addition to satisfying the procedural requirements of paragraph

(b)below, one of the following conditions is satisfied:* *(1) Obvious Price Error. An obvious pricing error will be deemed to have occurred when the execution price of a transaction is above or below the fair market value of the option by at least a prescribed amount. For series trading with normal bid-ask differentials as established in Rule 958(c), the prescribed amount shall be:

(a)the greater of $0.10 or 10% for options trading under $2.50;

(b)10% for options trading at or above $2.50 and under $5; or

(c)$0.50 for options trading at $5 or higher. For series trading with bid-ask differentials that are greater than the widths established in Rule 958(c), the prescribed error amount shall be:

(a)the greater of $0.20 or 20% for options trading under $2.50;

(b)20% for options trading at or above $2.50 and under $5; or

(c)$1.00 for options trading at $5 or higher.* *(i) Definition of Fair Market Value: For purposes of this Rule only, the fair market value of an option is the midpoint of the national best bid and national best offer for the series (across all exchanges trading the option). In multiply listed issues, if there are no quotes for comparison purposes, fair market value shall be determined by Trading Officials. For singly-listed issues, fair market value shall be the first quote after the transaction(s) in question that does not reflect the erroneous transaction(s). For transactions occurring as part of an opening, the Fair Market Value shall also be the first quote after the transaction(s) in question that does not reflect the erroneous transaction(s).* *(2) Obvious Quantity Error. An obvious error in the quantity term will be deemed to occur when the transaction size exceeds the responsible broker or dealer's average disseminated size over the previous four hours by a factor of five

(3)Verifiable Disruptions or Malfunctions of Exchange Systems. Trades arising out of a “verifiable disruption or malfunction” in the use or operation of any Exchange

(b)automated quotation, dissemination or communication system that prevented a member from updating or canceling a quote/order for which the member is responsible, provided there is Exchange documentation reflecting that the member sought to update or cancel the quote/order. With respect to verifiable disruptions or malfunctions of the Exchange's automated quotation system, documentation of the existence of the disruption or malfunction will be sufficient provided the automated quotation system was programmed to update or cancel a quote based upon specific changes in the underlying, those changes occurred and due to the disruption or malfunction the quote was not updated or cancelled. Transactions that qualify for price adjustment will be adjusted to the Fair Market Value, as defined in paragraph (a)(1)(i) above. * *(4) Erroneous Print in Underlying. A trade resulting from an erroneous print disseminated by the underlying market which is later cancelled or corrected by that underlying market may be cancelled or adjusted. In order to be cancelled or adjusted, however, the trade must be the result of an erroneous print that is higher or lower than the average trade in the underlying security during a two minute period before and after the erroneous print by an amount at least five times greater than the average quote width for such underlying security during the same period.* *For purposes of this Rule, the average trade in the underlying security shall be determined by adding the prices of each trade during the four minute time period referenced above (excluding the trade in question) and dividing by the number of trades during such time period (excluding the trade in question). For purposes of this Rule, the average quote width shall be determined by adding the quote widths of each separate quote during the four minute time period referenced above (excluding the quote in question) and dividing by the number of quotes during such time period (excluding the quote in question).* *(5) Erroneous Quote in Underlying. A trade resulting from an erroneous quote in the underlying security may be cancelled or adjusted. An erroneous quote occurs when the underlying security has a width of at least $1.00 and has a width at least five times greater than the average quote width for such underlying security on the primary market (as defined in Rule 900(b)(26)) during the time period encompassing two minutes before and after the dissemination of such quote.* *(6) Trades Below Intrinsic Value. An obvious pricing error will be deemed to occur when the transaction price of an equity option is more than $0.10 below the intrinsic value of the same option (an option that trades at its intrinsic value is sometimes said to trade at “parity”). Paragraph

(6)shall not apply to transactions occurring during the last two minutes of the trading day (which is typically 4:00:01 p.m.

(ET)to 4:02 p.m. (ET)) on days with regular trading hours).* *(i) Definition of Intrinsic Value: For purposes of this Rule, the intrinsic value of an equity call option equals the value of the underlying stock (measured from the bid or offer as described below) minus the strike price, and the intrinsic value of an equity put option equals the strike price minus the value of the underlying stock (measured from the bid or offer as described below), provided that in no case is the intrinsic value of an option less than zero. In the case of purchasing call options and selling put options, intrinsic value is measured by reference to the bid in the underlying security, and in the case of purchasing put options and selling call options, intrinsic value is measured by reference to the offer in the underlying security.* *(7) No Bid Series. Electronic transactions in series quoted no bid at a nickel (i.e., $0.05 offer) will be cancelled provided at least one strike price below (for calls) or above (for puts) in the same options class was quoted no bid at a nickel at the time of execution.*

(b)Procedures for Reviewing Transactions. *(1) Notification. Any member or person associated with a member that believes it participated in a transaction that may be cancelled or adjusted in accordance with paragraph

(a)must notify any Trading Official promptly but not later than fifteen

(15)minutes after the execution in question. For transactions occurring after 3:45 p.m. (ET), notification must be provided promptly but not later than fifteen

(15)minutes after the close of trading of that security on the Exchange. Absent unusual circumstances, Trading Officials shall not grant relief under this Rule unless notification is made within the prescribed time periods. In the absence of unusual circumstances, Trading Officials (either on their own motion or upon request of a member) must initiate action pursuant to paragraph (a)(3) above within sixty

(60)minutes of receiving notification pursuant to paragraph (b)(1) above. If the transaction(s) in question occurred after 3:30 p.m. (ET), Trading Officials shall have until 10:30 a.m.

(ET)the following morning to render a determination. Trading Officials shall promptly provide verbal notification of a determination to the members involved in the disputed transaction and to the Exchange's Service Desk.* *(c) Adjustments. Unless otherwise specified in Rule 936C(a)(1)-(6), transactions will be adjusted provided the adjusted price does not violate the customer's limit price. Otherwise, the transaction will be cancelled. With respect to 936C(a)(1)-(5), the price to which a transaction shall be adjusted shall be the national best bid or offer

(NBBO)immediately following the erroneous transaction with respect to a sell

(buy)order entered on the Exchange. For opening transactions, the price to which a transaction shall be adjusted shall be based on the first non-erroneous quote after the erroneous transaction on the Exchange. With respect to Rule 936C(a)(6), the transaction shall be adjusted to a price that is $0.10 under parity.* *(d) Review of Rulings. A member affected by a determination made under this rule may appeal such determination to a Review Panel of at least three

(2)of this Rule have no applicability to trades executed in open outcry.

(a)Trades Subject to Review. A member or person associated with a member may have a trade cancelled or adjusted if, in addition to satisfying the procedural requirements of paragraph

(b)below, one of the following conditions is satisfied:* *(1) Obvious Price Error. An obvious pricing error occurs when the execution price of an electronic transaction is above or below the Theoretical Price for the series by an amount equal to at least the amount shown below:* *Theoretical price* *Minimum amount* *Below* *$0.25* *$2 to $5* *0.40* *Above $5 to $10* *0.50* *Above $10 to $20* *0.80* *Above $20* *1.00* *Definition of Theoretical Price. For purposes of this Rule only, the Theoretical Price of an option series is, for series traded on at least one other options exchange, the last bid price with respect to an erroneous sell transaction and the last offer price with respect to an erroneous buy transaction, just prior to the trade, disseminated by the competing options exchange that has the most liquidity in that option class in the previous two calendar months. If there are no quotes for comparison, designated Trading Officials will determine the Theoretical Price. For transactions occurring as part of an opening, the Theoretical Price shall be the first quote after the transaction(s) in question that does not reflect the erroneous transaction(s).* *(i) Cancellation or Price Adjustment. Obvious Pricing Errors will be cancelled or adjusted as follows.* • *Transactions Between Amex specialists/registered options traders (ROTs): Where both parties to the transaction are Amex specialists/ROTs, the execution price of the transaction will be adjusted by Trading Officials to the prices provided in Paragraphs

(A)and

(B)below, minus

(plus)an adjustment penalty (“adjustment penalty”), unless both parties agree to adjust the transaction to a different price or agree to cancel the trade within fifteen

(b)automated quotation, dissemination or communication system that prevented a member from updating or canceling a quote/order for which the member is responsible, provided there is Exchange documentation reflecting that the member sought to update or cancel the quote/order. With respect to verifiable disruptions or malfunctions of the Exchange's automated quotation system, documentation of the existence of the disruption or malfunction will be sufficient provided the automated quotation system was programmed to update or cancel a quote based upon specific changes in the underlying, those changes occurred and due to the disruption or malfunction the quote was not updated or cancelled. Transactions that qualify for price adjustment will be adjusted to the Theoretical Price, as defined in paragraph (a)(1) above.* *(4) Erroneous Print in Underlying. A trade resulting from an erroneous print disseminated by the underlying market which is later cancelled or corrected by that underlying market may be cancelled. In order to be cancelled, however, the trade must be the result of an erroneous print that is higher or lower than the average trade in the underlying security during a two minute period before and after the erroneous print by an amount at least five times greater than the average quote width for such underlying security during the same period. For purposes of this Rule, the average trade in the underlying security shall be determined by adding the prices of each trade during the four minute time period referenced above (excluding the trade in question) and dividing by the number of trades during such time period (excluding the trade in question). For purposes of this Rule, the average quote width shall be determined by adding the quote widths of each separate quote during the four minute time period referenced above (excluding the quote in question) and dividing by the number of quotes during such time period (excluding the quote in question).* *(5) Erroneous Quote in Underlying. Electronic trades (this provision does not apply to trades executed in open outcry) resulting from an erroneous quote in the underlying security may be adjusted or canceled as set forth in paragraph (a)(1) above. An erroneous quote occurs when the underlying security has a width of at least $1.00 and has a width at least five times greater than the average quote width for such underlying security on the primary market (as defined in Rule 900(b)(26)—ANTE) during the time period encompassing two minutes before and after the dissemination of such quote. For purposes of this Rule, the average quote width shall be determined by adding the quote widths of each separate quote during the four minute time period referenced above (excluding the quote in question) and dividing the number of quotes during such time period (excluding the quote in question).*

(b)Procedures for Reviewing Transactions *

(1)Notification. Any member or person associated with a member that believes it participated in a transaction that may be cancelled or adjusted in accordance with paragraph

(a)must notify any Trading Official promptly but not later than fifteen

(60)minutes of the occurrence of the verifiable disruption or malfunction. When Trading Officials take action pursuant to paragraph (a)(3), the members involved in the transaction(s) shall receive verbal notification as soon as is practicable. * *(2) Review and Determination. Once a party to a transaction has applied to a Trading Official for review, the transaction shall be reviewed and a determination rendered, unless both parties to the transaction agree to withdraw the application for review prior to the time a decision is rendered. Absent unusual circumstances (e.g., a large number of disputed transactions arising out of the same incident), Trading Officials must render a determination within sixty

(c)Obvious Error Panel *(1) Composition. An Obvious Error Panel will be comprised of at least one

(1)one member of the regulatory staff and four

(4)Floor Officials. Fifty percent of the number of Floor Officials on the Obvious Error Panel must be directly engaged in market making activity and fifty percent of the number of Floor Officials on the Obvious Error Panel must act in the capacity of a non-specialist floor broker.* *(2) Scope of Review. If a party affected by a determination made under this Rule so requests within the time permitted in paragraph (b), an Obvious Error Panel will review decisions made by the Trading Officials under this Rule, including whether an obvious error occurred, whether the correct Theoretical Price was used, and whether the correct adjustment was made at the correct price. A party may also request that the Obvious Error Panel provide relief as required in this Rule in cases where the party failed to provide the notification required in paragraph

(b)and the Trading Officials declined to grant an extension, but unusual circumstances must merit special consideration.* *(3) Procedure for Requesting Review. A request for review must be made in writing within

(d)of this rule.* *(d) Review of Rulings. A member affected by a determination made under this rule may appeal such determination to a Review Panel of at least three

(ETFs)and trust issued receipts (TIRs). Rule 936 and 936—ANTE governs the cancellation and adjustment of transactions involving equity options. Paragraphs (a)(1), (2),

(6)and

(7)of this Rule have no applicability to trades executed in open outcry.*

(a)Trades Subject To Review *A member or person associated with a member may have a trade cancelled or adjusted if, in addition to satisfying the procedural requirements of paragraph

(a)The greater of $0.10 or 10% for options trading under $2.50;

(b)10% for options trading at or above $2.50 and under $5; or

(c)$0.50 for options trading at $5 or higher. For series trading with bid-ask differentials that are greater than the widths established in Rule 958(c)—ANTE, the prescribed error amount shall be:

(a)the greater of $0.20 or 20% for options trading under $2.50;

(b)20% for options trading at or above $2.50 and under $5; or

(c)$1.00 for options trading at $5 or higher.* *

(i)Definition of Fair Market Value: For purposes of this Rule only, the fair market value of an option is the midpoint of the national best bid and national best offer for the series (across all exchanges trading the option). In multiply listed issues, if there are no quotes for comparison purposes, fair market value shall be determined by Trading Officials. For singly-listed issues, fair market value shall be the first quote after the transaction(s) in question that does not reflect the erroneous transaction(s). For transactions occurring as part of an opening, the Fair Market Value shall also be the first quote after the transaction(s) in question that does not reflect the erroneous transaction(s). * *(2) Obvious Quantity Error. An obvious error in the quantity term will be deemed to occur when the transaction size exceeds the responsible broker or dealer's average disseminated size over the previous four hours by a factor of five

(5)times. The quantity to which a transaction shall be adjusted from an obvious quantity error shall be the responsible broker or dealer's average disseminated size over the previous four trading hours (which may include the previous trading day).* *(3) Verifiable Disruptions or Malfunctions of Exchange Systems.* Trades arising out of a “verifiable disruption or malfunction” in the use or operation of any Exchange

(a)automated quotation, dissemination, execution, or communication system that caused a quote/order to trade in excess of its disseminated size ( *e.g.* , a quote/order that is frozen because of an Exchange system error and is repeatedly traded) in which case trades in excess of the disseminated size may be nullified; or

(b)automated quotation, dissemination or communication system that prevented a member from updating or canceling a quote/order for which the member is responsible, provided there is Exchange documentation reflecting that the member sought to update or cancel the quote/order. With respect to verifiable disruptions or malfunctions of the Exchange's automated quotation system, documentation of the existence of the disruption or malfunction will be sufficient provided the automated quotation system was programmed to update or cancel a quote based upon specific changes in the underlying, those changes occurred and due to the disruption or malfunction the quote was not updated or cancelled. Transactions that qualify for price adjustment will be adjusted to the Fair Market Value, as defined in paragraph (a)(1)(i) above. *(4) Erroneous Print in Underlying. A trade resulting from an erroneous print disseminated by the underlying market which is later cancelled or corrected by that underlying market may be cancelled or adjusted. In order to be cancelled or adjusted, however, the trade must be the result of an erroneous print that is higher or lower than the average trade in the underlying security during a two minute period before and after the erroneous print by an amount at least five times greater than the average quote width for such underlying security during the same period.* *For purposes of this Rule, the average trade in the underlying security shall be determined by adding the prices of each trade during the four minute time period referenced above (excluding the trade in question) and dividing by the number of trades during such time period (excluding the trade in question). For purposes of this Rule, the average quote width shall be determined by adding the quote widths of each separate quote during the four minute time period referenced above (excluding the quote in question) and dividing by the number of quotes during such time period (excluding the quote in question).* *(5) Erroneous Quote in Underlying. A trade resulting from an erroneous quote in the underlying security may be cancelled or adjusted. An erroneous quote occurs when the underlying security has a width of at least $1.00 and has a width at least five times greater than the average quote width for such underlying security on the primary market (as defined in Rule 900 (b)(26)—ANTE) during the time period encompassing two minutes before and after the dissemination of such quote.* *(6) Trades Below Intrinsic Value. An obvious pricing error will be deemed to occur when the transaction price of an equity option is more than $0.10 below the intrinsic value of the same option (an option that trades at its intrinsic value is sometimes said to trade at “parity”). Paragraph

(6)shall not apply to transactions occurring during the last two minutes of the trading day (which is typically 4:00:01 p.m.

(ET)to 4:02 p.m. (ET)) on days with regular trading hours).

(i)Definition of Intrinsic Value: For purposes of this Rule, the intrinsic value of an equity call option equals the value of the underlying stock (measured from the bid or offer as described below) minus the strike price, and the intrinsic value of an equity put option equals the strike price minus the value of the underlying stock (measured from the bid or offer as described below), provided that in no case is the intrinsic value of an option less than zero. In the case of purchasing call options and selling put options, intrinsic value is measured by reference to the bid in the underlying security, and in the case of purchasing put options and selling call options, intrinsic value is measured by reference to the offer in the underlying security.* *(7) No Bid Series. Electronic transactions in series quoted no bid at a nickel (i.e., $0.05 offer) will be cancelled provided at least one strike price below (for calls) or above (for puts) in the same options class was quoted no bid at a nickel at the time of execution.*

(a)must notify any Trading Official promptly but not later than fifteen

(15)minutes after the execution in question. For transactions occurring after 3:45 p.m. (ET), notification must be provided promptly but not later than fifteen

(60)minutes of receiving notification pursuant to paragraph (b)(1) above. If the transaction(s) in question occurred after 3:30 p.m. (ET), Trading Officials shall have until 10:30 a.m.

(c)Adjustments. Unless otherwise specified in Rule 936C—ANTE (a)(1)-(6), transactions will be adjusted provided the adjusted price does not violate the customer's limit price. Otherwise, the transaction will be cancelled. With respect to Rule 936C—ANTE (a)(1)-(5), the price to which a transaction shall be adjusted shall be the national best bid or offer

(NBBO)immediately following the erroneous transaction with respect to a sell

(buy)order entered on the Exchange. For opening transactions, the price to which a transaction shall be adjusted shall be based on the first non-erroneous quote after the erroneous transaction on the Exchange. With respect to Rule 936C—ANTE (a)(6), the transaction shall be adjusted to a price that is $0.10 under parity. * *(d) Review of Rulings. A member affected by a determination made under this rule may appeal such determination to a Review Panel of at least three

(3)Exchange Officials who have not already ruled on the matter. A request for review must be made in writing (in a form and manner prescribed by the Exchange) no later than the close of trading on the next trade date after the member receives verbal notification of such determination by Trading Officials.* *Notwithstanding other Exchange rules to the contrary e.g., Rule 22(d)), decisions of the Review Panel are binding on members, subject to any right of appeal pursuant to Article II, Section 3 of the Constitution. The parties may also elect to submit the matter to arbitration pursuant to Article VIII of the Constitution.* *(e) Negotiated Trade Cancellation. A trade may be cancelled if the parties to the trade agree to the cancellation. When all parties to a trade have agreed to a trade cancellation one party must promptly disseminate cancellation information in OPRA format.* Commentary *.01 The term “Trading Officials” means two Exchange members designated as Floor Officials and one member of the Regulatory staff.* *.02 Applicability: Trading Officials may also allow for the execution of opening trades that were not executed on the opening but that should have been executed had the specialist opened the series at the non-erroneous price. The Exchange will endeavor to notify its members as soon as practicable after the correction of an erroneous print and will indicate that this may result in the adjustment of trades executed during the opening rotation. The only trades that will be adjusted are those that were executed on the opening or those that should have executed on the opening. All adjustments will be made during the day when the correction of the erroneous print occurred.* II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to adopt new Amex Rules 936, 936C, 936—ANTE, and 936C—ANTE to allow the Exchange to either cancel or adjust equity, index, exchange-traded fund (“ETF”), and trust issued receipt (“TIR”) options transactions, the terms of which are obviously in error. The proposal would apply to transactions in both the Amex New Trading Environment (“ANTE”) 10 as well as the existing floor-based auction market traditionally available on the Exchange. The proposed rule contains objective criteria for determining when an options transaction constitutes an “obvious error,” provides an objective process members must follow to seek relief under the rule, and provides an appeals process for members seeking to challenge an initial determination. Because of the lack of uniform obvious error rules among the options exchanges, customers that routinely send orders to multiple exchanges have indicated that a more uniform obvious error pricing rule with respect to equity options would be beneficial to them. Accordingly, in response to the requests of its customers, the Amex proposes to adopt an obvious error pricing rule for equity options that is similar to other options exchanges. The Exchange is also proposing an obvious error rule for index, ETF and TIR options. 10 The Commission approved the ANTE system in May 2004. *See* Securities Exchange Act Release No. 49747 (May 20, 2004), 69 FR 30344 (May 27, 2004) (approving File No. SR-Amex-2003-89). Amex represents that the rollout of ANTE is expected for completion by the end of the third quarter 2005 with the top 300 option classes on ANTE by the end of January 2005. Accordingly, the proposal initially would require application to both the traditional floor-based system as well as ANTE. Upon completion of the rollout of ANTE, the proposed rule would only need to apply to ANTE. *Obvious Error Rule for Equity Options (Amex Rules 936 and 936—ANTE).* *Criteria for Determining an Erroneous Transaction.* For purposes of proposed Amex Rules 936 and 936—ANTE, an options transaction must satisfy one of the following “obvious error” categories in order for such transaction to be reviewed for cancellation or adjustment by the Exchange. *Obvious Price Error.* The Exchange proposes to adopt an obvious price error rule that operates identically to that of Chicago Board Options Exchange, Inc. (“CBOE”) Rule 6.25. As such, an obvious pricing error will be deemed to have occurred when the execution price of an electronic transaction (not open outcry) varies from the Theoretical Price 11 by a requisite amount. 12 When an obvious price error occurs, Amex either will adjust or cancel the transaction in the following manner. 11 The Exchange proposes to use the definition of Theoretical Price currently employed by the CBOE and the International Securities Exchange (“ISE”). See CBOE Rule 6.25(a)(1) and ISE Rule 720(b). For multiply traded options, Theoretical Price will be the last bid (offer) price with respect to an erroneous sell

(buy)transaction just prior to the trade that is disseminated by the competing options exchange with the most liquidity in that class over the preceding two calendar months. If there are no quotes for comparison purposes, trading officials shall determine Theoretical Price. For transactions occurring as part of an opening, Theoretical Price shall be the first quote after the transaction(s) in question that does not reflect the erroneous transaction(s). 12 The requisite amount is: $0.25 for options below $2, $0.40 for options priced from $2 to $5, $0.50 for options priced above $5 to $10, $0.80 for options priced above $10 to $20, and $1.00 for options priced above $20. *Transactions Between Amex Specialists/Registered Options Traders (“ROTs”).* Transactions between Amex specialists/ROTs will be adjusted to the Theoretical Price plus/minus an “adjustment penalty” of either $0.15 or $0.30. Erroneous buy transactions will be adjusted to the Theoretical Price plus an adjustment penalty of either $0.15 if the Theoretical Price is below $3 or $0.30 if the Theoretical Price is $3 or higher. Conversely, erroneous sell transactions will be adjusted to the Theoretical Price minus an adjustment penalty of either $0.15 if the Theoretical Price is below $3 or $0.30 if the Theoretical Price is $3 or higher. Both parties to the transaction may agree to adjust to a different price or cancel the transaction altogether provided they do so within fifteen

(15)minutes of being notified by trading officials that an obvious error occurred. *Transactions where One Party is not an Amex specialist/ROT.* In cases where at least one party is not an Amex specialist/ROT, the transaction will be cancelled by trading officials unless both parties agree to an adjustment price for the transaction within thirty

(30)minutes of being notified by trading officials of the obvious error. This is identical to CBOE Rule 6.25. *Series Quoted No Bid.* An obvious pricing error will also be deemed to exist for “series quoted no bid.” Electronic transactions in series quoted no bid at a nickel ( *i.e.* , $0.05 offer) will be cancelled provided at least one strike price below (for calls) or above (for puts) in the same class were quoted no bid at a nickel ($0.05) at the time of execution. This proposed rule provision would correct errors in out-of-the-money options that often have no intrinsic value. *Verifiable Disruptions or Malfunctions of Exchange Systems.* Transactions arising out of a “verifiable disruption or malfunction” in the use or operation of any Exchange

(1)automated quotation, dissemination, execution, or communication system that caused a quote/order to trade in excess of its disseminated size ( *e.g.* , a quote/order that is frozen because of an Exchange system error and is repeatedly traded) in which case trades in excess of the disseminated size may be nullified; or

(2)automated quotation, dissemination, or communication system that prevented a member from updating or canceling a quote/order for which the member is responsible, provided there is Exchange documentation reflecting that the member sought to update or cancel the quote/order. With respect to verifiable disruptions or malfunctions of the Exchange's automated quotation system, documentation of the existence of the disruption or malfunction will be sufficient provided the automated quotation system was programmed to update or cancel a quote based upon specific changes in the underlying, those changes occurred, and due to the disruption or malfunction, the quote was not updated or cancelled. This Rule will apply to transactions occurring both electronically and in open outcry. *Erroneous Print in Underlying Market.* A trade resulting from an erroneous print disseminated by the underlying market that is later cancelled or corrected by that underlying market may be cancelled. In order to be cancelled, however, the trade must be the result of an erroneous print that is higher or lower than the average trade in the underlying security during a two

(2)minute period before and after the erroneous print by an amount at least five

(5)times greater than the average quote width for such underlying security during the same period. This Rule will apply to transactions occurring both electronically and in open outcry. *Erroneous Quote in Underlying Security.* A trade resulting from an erroneous quote in the underlying security may be adjusted or cancelled. An erroneous quote occurs when the underlying security has a width of at least $1.00 and a width at least five times greater than the average quote width for such underlying security on the primary market (as defined in Amex Rule 900(b)(26) and Amex Rule 900(b)(26)—ANTE) during the time period encompassing two minutes before and after the dissemination of such quote. For purposes of this proposed Rule, the average quote width shall be determined by adding the quote widths of each separate quote during the four-minute time period referenced above (excluding the quote in question) and dividing the number of quotes during such time period (excluding the quote in question). *Erroneous Transactions During the Opening.* A trading rotation in options is held each business day promptly following the opening of the underlying security or the availability of opening quotations in the underlying security. Included in the opening rotation are pre-opening market and limit orders as well as orders on the book from the previous trading day. As described in Commentary .01 to Amex Rule 918 and Commentary .01 to Amex Rule 918—ANTE, an opening price will be established and all market and marketable limit orders will be executed. Depending upon the opening price some limit orders may not be eligible for execution. If that opening price is erroneous and later corrected, Trading Officials may also allow for the execution of trades that were not executed on the opening but that should have been executed had the specialist or ANTE System opened the series at the non-erroneous price. The Exchange will endeavor to notify its members as soon as practicable after the correction of an erroneous print and will indicate that this may result in the adjustment of trades executed pursuant to the opening rotation. The only trades that will be adjusted are those that were executed on the opening or those that should have executed on the opening. All adjustments will be made during the day when the correction of the erroneous print occurred. *Procedures for Reviewing Options Transactions Deemed Erroneous.* The proposed Amex Rule would allow the Exchange to cancel or adjust options transactions that are obviously erroneous where either the parties agree or do not agree that the transaction should be cancelled or revised. Under the proposed Rule, a member or person associated with a member may request trading officials to review an option transaction(s) claimed to be erroneous. The Exchange proposes to require notification within 15 minutes of the transaction in question, regardless of the time it occurred. Once a ruling is requested, the trading officials must review the trade unless both parties agree to withdraw an application before ruling is made. The proposed Rule requires trading officials to render a determination within 60 minutes of notification, regardless of the time the transaction occurred. 13 13 The Amex represents that trading officials will remain at the Exchange until a determination is rendered. The process for appealing determinations regarding obvious errors is proposed in new Amex Rules 936(d) and 936(d)—ANTE. The Exchange proposes to create an Obvious Error Panel (“Panel”) that will review decisions rendered by trading officials. The rules creating and governing the Panel are substantially similar to CBOE Rule 6.25(c) and ISE Rule 720(e). Regarding the composition of the Panel, Amex, in addition to including one member of the regulatory staff, will require that the Panel be comprised of an equal number of Amex specialists and ROTs, and floor broker members. Decisions of the Panel are subject to review by a panel of three

(3)Exchange Officials who have not already ruled on the matter presented on appeal. Notwithstanding other Exchange rules to the contrary ( *e.g.* , Rule 22(d)), the decision or ruling of the three

(3)Exchange Official panel is binding on members subject to any right of appeal pursuant to Article II, Section 3 of the Amex Constitution. The parties may also submit the matter to arbitration pursuant to Article VIII of the Amex Constitution. *Obvious Error Rule for Index, ETF and TIR Options (Amex Rules 936C and 936C—ANTE). Criteria for Determining an Erroneous Transaction.* For purposes of proposed Amex Rules 936C and 936C—ANTE, an options transaction must satisfy one of the following “obvious error” categories in order for such transaction to be reviewed for cancellation or adjustment by the Exchange. The Exchange represents that the proposal is identical to CBOE Rule 24.16. *Obvious Price Error.* An obvious price error will be deemed to have occurred when the execution price of a transaction is above or below the fair market value of the option by at least a prescribed amount. For series trading with normal bid-ask spreads as set forth in Amex Rule 958(c) and Amex Rule 958(c)—ANTE, the prescribed amount shall be:

(a)The greater of $0.10 or 10% for options trading under $2.50;

(b)10% for options trading at or above $2.50 and under $5; or

(c)$0.50 for options trading at $5 or higher. For series trading with bid-ask spreads that are greater than the bid-ask spreads established in Rule 958(c) and 958(c)—ANTE, the prescribed error amount shall be:

(a)The greater of $0.20 or 20% for options trading under $2.50;

(b)20% for options trading at or above $2.50 and under $5; or

(c)$1.00 for options trading at $5 or higher. Fair market value for these purposes is deemed to be the midpoint of the national best bid and national best offer (the “NBBO”) for the series for multiple-traded classes. If there are no quotes for comparison purposes, fair market value shall be determined by trading officials. In connection with single-listed classes, fair market value shall be the first quote after the transaction(s) in question that does not reflect the erroneous transaction(s). For transactions occurring as part of the opening, fair market value shall also be the first quote after the transaction(s) in question that does not reflect the erroneous transaction(s). *Obvious Quantity Error.* An obvious error in quantity will be deemed to occur when the transaction size exceeds the responsible broker or dealer's average disseminated size over the previous four

(4)hours by a factor of ten

(10)times. The quantity to which a transaction shall be adjusted from an obvious quantity error shall be the responsible broker or dealer's average disseminated size over the previous four

(4)trading hours (which may include the previous trading day). *Verifiable Disruptions or Malfunctions of Exchange Systems.* Transactions arising out of a “verifiable disruption or malfunction” in the use or operation of any Exchange

(2)automated quotation, dissemination or communication system that prevented a member from updating or canceling a quote/order for which the member is responsible, provided there is Exchange documentation reflecting that the member sought to update or cancel the quote/order. With respect to verifiable disruptions or malfunctions of the Exchange's automated quotation system, documentation of the existence of the disruption or malfunction will be sufficient provided the automated quotation system was programmed to update or cancel a quote based upon specific changes in the underlying, those changes occurred, and due to the disruption or malfunction, the quote was not updated or cancelled. This Rule will apply to transactions occurring both electronically and in open outcry. *Erroneous Print in Underlying Market.* A trade resulting from an erroneous print disseminated by the underlying market that is later cancelled or corrected by that underlying market may be cancelled or adjusted. In order to be cancelled or adjusted, however, the trade must be the result of an erroneous print that is higher or lower than the average trade in the underlying security during a two

(2)minute period before and after the erroneous print by an amount at least five

(5)times greater than the average quote width for such underlying security during the same period. For purposes of this Rule, the average quote width shall be determined by adding the quote widths of each separate quote during the four

(4)minute time period referenced above (excluding the quote in question) and dividing by the number of quotes during such time period (excluding the quote in question). *Erroneous Quote in Underlying Security.* A trade resulting from an erroneous quote in the underlying security may be cancelled or adjusted. An erroneous quote occurs when the underlying security has a width of at least $1.00 and that width is at least five

(5)times greater than the average quote width for such underlying security on the primary market (as defined in Amex Rule 900(b)(26) and Amex Rule 900(b)(26)—ANTE during the time period encompassing two

(2)minutes before and after the dissemination of such quote. *Trades Below Intrinsic Value.* An obvious pricing error will be deemed to exist where a trade is automatically executed at a price so that the specialist or ROT sells at $0.10 or more below intrinsic value. An option that trades at its intrinsic value is known as trading at “parity.” Parity describes an option contract's total premium when that premium is equal to its intrinsic value. Parity for calls is measured by reference to the offer price of the underlying security at the time of the transaction minus the strike price for the call. Parity for puts is measured by the strike price of an underlying security minus its bid price at the time of the transaction. *Series Quoted No Bid.* An obvious pricing error will also be deemed to exist for “series quoted no bid.” In this situation, the trade resulted in an execution price in a series quoted no bid and at least one strike price below (for calls) or above (for puts) in the same class were quoted no bid immediately before the time of the erroneous execution, and the bid following the execution in that series was zero. This proposed rule provision would correct errors in out-of-the-money options that often have no intrinsic value. *Adjustments.* If the trading officials determine that the particular option transaction fits within one of the categories set forth above and the complaining party has timely documented a request for relief, then the trade will be cancelled or adjusted. In general, transactions will be adjusted provided the adjusted price does not violate the customer's limit price. Otherwise, the transaction will be cancelled. With respect to transactions deemed in error as set forth in Amex Rules 936C(a)(1)-(5) and 936C(a)(1)-(5)—ANTE, the price to which a transaction will be adjusted is the NBBO immediately following the erroneous transaction order entered on the Exchange. For opening transactions in ANTE, the price to which a transaction shall be adjusted is based on the first non-erroneous quote after the erroneous transaction on the Amex. In connection with transactions below intrinsic value set forth in Amex Rules 936C(a)(6) and 936C(a)(6)—ANTE, the transaction would be adjusted to a price that is $0.10 under parity. *Negotiated Trade Cancellation.* A trade may also be cancelled if the parties to the trade agree to the cancellation. When a cancellation has been agreed to, one of the parties is required to disseminate cancellation information in OPRA format. *Erroneous Transactions During the Opening.* A trading rotation in options is held each business day promptly following the opening of the underlying security or the availability of opening quotations in the underlying security. Included in the opening rotation are pre-opening market and limit orders as well as orders on the book from the previous trading day. As described in Commentary .01 to Amex Rule 918 and Commentary .01 to Amex Rule 918—ANTE, Commentary .01, an opening price will be established and all market and marketable limit orders will be executed. Depending upon the opening price some limit orders may not be eligible for execution. If that opening price is erroneous and later corrected, trading officials may also allow for the execution of trades that were not executed on the opening but that should have been executed had the specialist or ANTE System opened the series at the non-erroneous price. The Exchange will endeavor to notify its members as soon as practicable after the correction of an erroneous print and will indicate that this may result in the adjustment of trades executed pursuant to the opening rotation. The only trades that will be adjusted are those that were executed on the opening or those that should have executed on the opening. All adjustments will be made during the day when the correction of the erroneous print occurred. *Procedures for Reviewing Options Transactions Deemed Erroneous.* The proposed Rule would allow the Exchange to cancel or adjust options transactions that are obviously erroneous where either the parties agree or do not agree that the transaction should be cancelled or revised. Under the proposed rule change, a member or person associated with a member may request trading officials to review an option transaction(s) claimed to be erroneous. Once a ruling is requested, the trading officials must review the trade unless both parties agree to withdraw an application before ruling is made. Notification of trading officials by a member indicating that a transaction should be cancelled or adjusted should occur promptly but no later than fifteen

(15)minutes after the execution in question. For transactions occurring after 3:45 p.m. Eastern Time (ET), notification may not occur later than fifteen

(15)minutes after the close of trading. Absent unusual circumstances, trading officials must render a determination within sixty

(60)minutes of receiving notification. If the transaction(s) in question occurred after 3:30 p.m. ET, trading officials have until 10:30 a.m.

(ET)the following morning to render a determination. A member affected by a determination made under the proposed Rule may appeal such determination to a Review Panel of at least three

(3)Exchange Officials. A request for review must be made in writing no later than the close of trading on the next trade date after a party receives verbal notification of a final determination by trading officials. Notwithstanding other Exchange rules to the contrary ( *e.g.* , Amex Rule 22(d)), decisions of the Review Panel are binding on members, subject to any right of appeal pursuant to Article II, Section 3 of the Amex Constitution. The parties may also submit the matter to arbitration pursuant to Article VIII of the Amex Constitution. 2. Statutory Basis Amex represents that the filing provides objective guidelines for the nullification or adjustment of transactions executed at clearly erroneous prices. Moreover, the proposed rule change provides more uniformity regarding obvious pricing errors, which will serve to benefit customers. For these reasons, the Exchange believes the proposed rule change is consistent with the Act and the rules and regulations under the Act applicable to a national securities exchange and, in particular, the requirements of section 6(b) of the Act. 14 Specifically, the Exchange believes the proposed rule change is consistent with the requirements of section 6(b)(5) of the Act 15 that the rules of an exchange be designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts and practices, and, in general, to protect investors and the public interest. 14 15 U.S.C. 78(f)(b). 15 15 U.S.C. 78(f)(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition Amex does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change

(1)does not significantly affect the protection of investors or the public interest;

(2)does not impose any significant burden on competition; and

(3)by its terms, does not become operative until 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, and the Exchange provided the Commission with written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission, it has become effective pursuant to section 19(b)(3)(A) of the Act 16 and Rule 19b-4(f)(6) thereunder. 17 16 15 U.S.C. 78s(b)(3)(A). 17 17 CFR 240.19b-4(f)(6). The Exchange has requested that the Commission waive the 30-day operative delay and designate the proposed rule change immediately operative. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. 18 The proposed Amex obvious error rules are substantially similar to CBOE Rules 6.25 and 24.16. Thus, the Commission does not believe that the proposed rule change raises any new regulatory issues. In addition, the Commission believes that waiver of the 30-day operative delay would enable the Exchange to implement the proposal as quickly as possible, and thereby should provide Amex members and users of Amex facilities with greater clarity with respect to whether a particular options transactions involves an obvious error. 18 For purposes of waiving the operative delay of this proposal, the Commission has considered the proposed rules impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). At any time within 60 days of the filing of this proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 19 19 For purposes of calculating the sixty-day abrogation period, the Commission considers the abrogation period to have begun on February 22, 2005, the date Amex submitted Amendment No. 4. *See* 15 U.S.C. 78s(b)(3)(C). IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-Amex-2005-11 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-Amex-2005-11. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of Amex. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Amex-2005-11 and should be submitted on or before March 24, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 20 20 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-844 Filed 3-2-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51248; File No. SR-Amex-2004-11] Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change and Amendment Nos. 1 and 2 Thereto by the American Stock Exchange LLC Relating to an Obvious Error Rule for Trades on the Exchange in Equity Securities February 24, 2005. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on February 3, 2004, the American Stock Exchange LLC (“Amex” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in items I and II below, which items have been prepared by the Exchange. On May 21, 2004 and February 18, 2005, Amex submitted Amendment Numbers 1 3 and 2, 4 respectively, to the proposed rule change. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons and is approving the proposal, as amended, on an accelerated basis. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 In Amendment No. 1, the Exchange, among other things, revised the proposed rule text to state expressly that it would not apply to listed options and to more closely mirror the Exchange's existing rule concerning clearly erroneous transactions in Nasdaq National Market Securities. *See* letter from Bill Floyd-Jones, Associate General Counsel, Amex, to Nancy J. Sanow, Assistant Director, Division of Market Regulation (“Division”), Commission, dated May 20, 2004 (“Amendment No. 1”) (replacing the original Form 19b-4 filing in its entirety). 4 In Amendment No. 2, the Exchange, among other things, made technical corrections to its proposed rule text and requested accelerated approval of the proposed rule change. Amendment No. 2 superceded and replaced Amendment No. 1 in its entirety. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change Amex proposes to adopt an obvious error rule for transactions on the Exchange in equity securities other than Nasdaq National Market securities admitted to dealings on an unlisted basis. 5 The text of the proposed rule change follows. New text is italicized and deleted text is bracketed. 5 Telephone conversation between William Floyd-Jones, Associate General Counsel, Amex, and Terri L. Evans, Senior Special Counsel, Division, Commission, on February 22, 2005 (clarifying that the proposed rule change does not apply to Nasdaq National Market securities). Cancellations of, and Revisions in, Transactions *Where Both the Buying and Selling Members Agree to the Cancellation or Revision* Rule 135. ( *a* ) A member or member organization effecting a transaction on the Exchange shall not cancel or revise such transaction unless it was made in error or the cancellation or revision is for other proper reason, and unless in each case both buying and selling members agree to the cancellation or revision and prior approval of the cancellation or revision is obtained from a Floor Official. *(b) Rule 390 shall not preclude a member, member organization, allied member, registered representative, or officer from sharing or agreeing to share in any losses in any customer's account with respect to securities admitted to dealings on the Exchange after the member organization has established that the loss was caused in whole or in part by the action or inaction of such member, member organization, allied member, registered representative or officer, provided, however, that this provision shall not permit a member, member organization, allied member, registered representative or officer to guarantee any customer against loss in his or her account.* * * * Commentary .01 A change or correction in a transaction which previously appeared on the tape, or the cancellation of a transaction which previously appeared on the tape and was properly rescinded, or the occurrence of a transaction which had been omitted from the tape, is to be published on the tape on the day of the transaction after approval of such publication is obtained from a Floor Official. If not published on such day, the same is to be published at a later date in the Exchange's Sales and Quotes Report with the approval of a Floor Official. .02 *Rescinded* [Where a transaction is not cancelled but the member or member organization intends to assume for his or its own account the contract made for a customer, the provisions of Rule 390 apply, and any required consent of the Exchange under that rule is to be obtained from the Compliance and Surveillance Division.] Cancellations of, and Revisions in, Transactions Where Both the Buying and Selling Members Do Not Agree to the Cancellation or Revision *Rule 135A

(a)A Floor Official shall, pursuant to the procedures set forth below, have the authority to review any transaction in a security admitted to dealings on the Exchange that is claimed to be clearly erroneous arising out of the use or operation of any facility of the Exchange, provided, however, that the procedures for reviewing transactions in Nasdaq National Market securities admitted to dealings on the Exchange are separately set forth in Rule 118 and provided further that these procedures do not apply to listed options.* * In reviewing a trade that is claimed to be clearly erroneous, a Floor Official shall review the transaction with a view toward maintaining a fair and orderly market and the protection of investors and the public interest. Based upon this review, the Floor Official shall decline to “break” a disputed transaction if the Floor Official believes that the transaction under dispute is not clearly erroneous. If the Floor Official determines the transaction in dispute is clearly erroneous, however, he or she shall declare that the transaction is null and void or modify one or more terms of the transaction. When adjusting the terms of a transaction, the Floor Official shall seek to adjust the price and/or size of the transaction to achieve an equitable rectification of the error that would place the parties to a transaction in the same position, or as close as possible to the same position, as they would have been in had the error not occurred. For the purposes of this Rule, the terms of a transaction are clearly erroneous when there is an obvious error in any term, such as price, number of shares or other unit of trading, or identification of the security. * *(b) Any member who seeks to have one or more transactions reviewed pursuant to paragraph

(a)above shall submit the matter to a Floor Official and deliver a written complaint to the Service Desk and the other member(s) who were part of the trade within 30 minutes of the transaction. Once a complaint has been received, the complainant shall have up to 30 minutes, or such longer period as the Floor Official may specify, to submit any supporting written information concerning the complaint necessary for a review of the transaction. The other member(s) that were part of the trade shall have up to thirty minutes after being notified of the complaint, or such longer period as specified by the Floor Official, to submit any supporting written information concerning the complaint necessary for a review of the transaction. Any member on a disputed trade may request the written information provided by the other members pursuant to this subparagraph. Once a member communicates that he or she does not intend to submit any further information concerning a complaint, the member may not thereafter provide additional information unless requested to do so by the Floor Official. If the members involved in a disputed trade indicate that they have no further information to provide concerning the complaint before their thirty-minute information submission periods have elapsed, then the matter may be immediately considered by a Floor Official. Members or persons associated with members and member organizations involved in the transaction shall provide the Floor Official with any information that he or she requests in order to resolve the matter on a timely basis notwithstanding the time parameters set forth above. Once a member has applied to a Floor Official for a ruling, the Floor Official shall review the transaction and make a ruling unless all members on the transaction agree to withdraw the application for review prior to the time that the Floor Official makes the ruling. A member may seek review of a Floor Official's ruling pursuant to the procedures described in Rule 22(d) and Commentary .02 to Rule 22.* *(c) In the event of

(1)a disruption or malfunction in the use or operation of any facility of the Exchange or

(2)extraordinary market conditions or other circumstances in which the nullification or modification of transactions executed on the Exchange may be necessary for the maintenance of a fair and orderly market or the protection of investors and the public interest, a Floor Governor may review any transactions arising out of or reported through any facility of the Exchange (other than transactions in Nasdaq National Market securities which are covered by Rule 118 or transactions in listed options). A Floor Governor acting pursuant to this paragraph may declare any Amex transaction null and void or modify the terms of any such transactions if the Floor Governor determines that

(1)the transaction is clearly erroneous, or

(2)such actions are necessary for the maintenance of a fair and orderly market or the protection of investors and the public interest; provided, however, that, in the absence of extraordinary circumstances, the Floor Governor shall take action pursuant to this subsection within 30 minutes of detection of the transaction, but in no event later than 3:00 p.m., Eastern Time, on the next trading day following the date of the trades at issue. A member may seek review of a Floor Governor's ruling from a three-Governor Panel as described in Rule 22(d) and Commentary .02 to Rule 22 without first seeking review of the ruling from a Floor Official or Exchange Official.* *(d) Rule 390 shall not preclude a member, member organization, allied member, registered representative, or officer from sharing or agreeing to share in any losses in any customer's account with respect to securities admitted to dealings on the Exchange after the member organization has established that the loss was caused in whole or in part by the action or inaction of such member, member organization, allied member, registered representative or officer, provided, however, that this provision shall not permit a member, member organization, allied member, registered representative or officer to guarantee any customer against loss in his or her account.* * * * Commentary *.01 A change or correction in a transaction which previously appeared on the tape, or the cancellation of a transaction which previously appeared on the tape and was properly rescinded, or the occurrence of a transaction which had been omitted from the tape, is to be published on the tape on the day of the transaction after approval of such publication is obtained from a Floor Official. If not published on such day, the same is to be published at a later date in the Exchange's Sales and Quotes Report with the approval of a Floor Official.* II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in item III below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose According to the Exchange, trades may occur at clearly erroneous prices, sizes, securities, and so forth, due to human or system errors. The Exchange, accordingly, is proposing to adapt the “obvious error” rule that was adopted for Nasdaq securities traded at the Exchange 6 to other Amex securities traded under the Exchange's equity trading rules. Listed options are not affected by the proposed rule change. 7 The proposed Amex obvious error rule would allow the Exchange to break or revise single or multiple trades that are obviously erroneous where the parties to the trades do not agree that the trades should be cancelled or revised. Under the proposed rule, a member may request an Amex Floor Official to review one or more transactions that are claimed to be clearly erroneous. Once a ruling is requested, a Floor Official must review the trade unless both parties agree to withdraw the application before the Floor Official makes a ruling. 6 *See* Securities Exchange Act Release No. 49941 (June 29, 2004), 69 FR 40992 (July 7, 2004) (approving Amex-2003-39). Telephone conversation between William Floyd-Jones, Associate General Counsel, Amex, and Terri L. Evans, Senior Special Counsel, Division, Commission, on February 22, 2005. 7 The Exchange has submitted a separate rule filing regarding obvious errors involving options transactions. *See* Amex-2005-11. Telephone conversation between William Floyd-Jones, Associate General Counsel, Amex, and Terri L. Evans, Senior Special Counsel, Division, Commission, on February 22, 2005. The proposed rule would require a Floor Official to review a transaction or series of transactions with a view toward maintaining a fair and orderly market and the protection of investors and the public interest. Based upon this review, the Floor Official would decline to “break” a disputed transaction if the Floor Official believes that the transaction under dispute is not clearly erroneous. If the Floor Official determines the transaction in dispute is clearly erroneous, however, the Floor Official may declare the transaction null and void or modify one or more terms of the transaction. When adjusting the terms of a transaction, the Floor Official would seek to adjust the price and/or size of the transaction to achieve an equitable rectification of the error that would place the parties to a transaction in the same position, or as close as possible to the same position, as they would have been in had the error not occurred. The proposed rule establishes deadlines and procedures for Floor Official review of a disputed transaction. The procedures require any member who seeks to have a transaction or series of transactions reviewed to submit the matter to a Floor Official and deliver a written complaint to the Service Desk and other members who were part of the trade within 30 minutes of the transaction. Once a complaint has been received, the complainant has up to 30 minutes, or such longer period as the Floor Official may specify, to submit any supporting written information concerning the complaint necessary for a review of the transaction. The other members involved on the trade have up to 30 minutes after being notified of the complaint, or such longer period as specified by the Floor Official, to submit any supporting written information concerning the complaint necessary for a review of the transaction. The members involved in a disputed trade may request the written information provided by the other members. Once a member involved in a disputed trade communicates that he or she does not intend to submit any further information concerning a complaint, the member may not thereafter provide additional information unless requested to do so by the Floor Official. If all members involved in a disputed trade indicate that they have no further information to provide concerning the complaint before their respective 30 minute information submission periods have elapsed, then the matter may be immediately considered by a Floor Official. Members or persons associated with members and member organizations involved in the transaction are required to provide the Floor Official with any information that he or she requests in order to resolve the matter on a timely basis. The proposed rule change also provides that a Floor Governor may review any transactions arising out of or reported through any facility of the Exchange and cancel or revise these transactions in the event of:

(1)A disruption or malfunction in the use or operation of any facility of the Exchange; or

(2)extraordinary market conditions or other circumstances in which the nullification or modification of transactions may be necessary for the maintenance of a fair and orderly market or the protection of investors and the public interest. A Floor Governor acting pursuant to this subsection may declare any Amex transactions null and void or modify the terms of any such transactions if the Floor Governor determines that:

(1)The transaction(s) is/are clearly erroneous; or

(c)of the proposed rule may appeal the ruling to a three Governor panel. Commentary .02 to Amex Rule 22 requires Floor Officials to prepare and submit a written record of their decisions as soon as practical after making a ruling. Floor Officials, consequently, would have to prepare and submit written decisions regarding rulings on trades that may be clearly erroneous. Since Exchange Officials and Floor Governors are also Floor Officials, they, too, would have to prepare and submit a written record of their decisions regarding rulings on trades that may be clearly erroneous. In conjunction with the revisions to Rule 135 and 135A, the Exchange also is proposing to eliminate Commentary .02 to Rule 135 and replace it with new paragraph

(b)to Rule 135 and paragraph

(d)to Rule 135A. Commentary .02 to Rule 135 currently states that members must obtain consent from the Exchange's “Compliance and Surveillance Division” if they assume a trade made in error. The text of Rule 390, however, does not require any such consent. The Exchange also believes that the proposed new rule text more accurately indicates that a member or member organization does not inappropriately share in the losses of a customer account when it assumes a trade made in error. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with section 6(b) of the Act, 8 in general, and further the objectives of section 6(b)(5), 9 in particular, in that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest; and is not designed to permit unfair discrimination between customers, issuers, brokers and dealers. 8 15 U.S.C. 78f(b). 9 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange believes that the proposed rule change will impose no burden on competition not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments were neither solicited nor received with respect to the proposed rule change. III. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-Amex-2004-11 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-Amex-2004-11. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of this filing also will be available for inspection and copying at the principal office of the Amex. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Amex-2004-11 and should be submitted on or before March 24, 2005. IV. Commission's Findings and Order Granting Accelerated Approval of Proposed Rule Change The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder, that are applicable to a national securities exchange. In particular, the Commission finds that the proposed rule change is consistent with the requirements of section 6(b)(5) of the Act, 10 which requires that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism for a free and open market and a national market system, and, in general, to protect investors and the public interest. 11 New Amex Rule 135A will set forth formal procedures to be followed by an Exchange member that seeks to have a trade nullified or revised when the parties to the trade have not agreed that the trade should be cancelled or revised, or by an Amex Floor Governor who seeks to nullify or revise trades on his or her own motion. The Commission believes that it is proper for trade nullification and revision procedures to be codified and thus made transparent to Amex members who are parties to trades that are deemed to be clearly erroneous and to Amex Floor Officials who are called upon to review such trades. The new rule also sets forth the procedure to be followed in the event of any appeal of a determination made by an Exchange Floor Official or Floor Governor pursuant to proposed Amex Rule 135A. The Commission believes that this procedure is designed to help ensure that Amex Rule 135A is exercised in a fair and reasonable manner. In addition, the Commission believes that proposed Amex Rules 135(b) and 135A(d), which allow a member to share in customer losses that were caused in whole or in part by the member's action or inaction, are consistent with the Act. 10 *Id.* 11 In approving this proposed rule change, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). The Commission finds good cause for approving the proposed rule change prior to the 30th day after the date of publication of the notice of filing thereof in the **Federal Register** . The Commission notes that the proposed rule change would provide members trading non-Nasdaq equity securities with essentially the same procedures recently approved by the Commission for the nullification or adjustment of clearly erroneous transactions involving Nasdaq National Market Securities. 12 The Commission believes that because the proposal raises no new issues of regulatory concern, it is appropriate to accelerate approval of the proposed rule change so that members who trade any kind of equity securities that are admitted to dealings on the Exchange will be afforded similar processes in the event that a particular trade to which they are a party is claimed to be clearly erroneous. 12 *See* Securities Exchange Act Release No. 49941, *supra* note 6. V. Conclusion It is therefore ordered, pursuant to section 19(b)(2) of the Act, 13 that the proposed rule change, as amended (SR-Amex-2004-11), is hereby approved, on an accelerated basis. 13 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 14 14 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-845 Filed 3-2-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51251; File No. SR-BSE-2004-27] Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change and Amendment No. 1 Thereto by the Boston Stock Exchange, Inc., Relating to the Reporting of Riskless Principal Transactions February 24, 2005. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on December 3, 2004, the the Boston Stock Exchange, Inc. (“BSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in items I and II below, which items have been prepared by the Exchange. On December 23, 2004, the Exchange submitted Amendment No. 1 to the proposed rule change. 3 The Commission is publishing this notice and order to solicit comments on the proposed rule change, as amended, from interested persons and to grant accelerated approval to the proposal. 1 15 U.S.C. 78s(b)(1). 1 17 CFR 240.19b-4. 3 Amendment No.1 superseded and replaced the original proposal in its entirety. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change BSE is proposing to adopt a rule pertaining to the reporting of riskless principal transactions. Proposed new language is *italicized.* Chapter II Dealings on the Exchange Secs. 1-43 No change. Riskless Principal Transactions Sec. 43 *(1) A “riskless principal transaction” is a two-legged transaction in which a member,

(i)after having received an order to buy a security that it holds for execution on the Exchange, contemporaneously purchases the security as principal at the same price, exclusive of markups, markdowns, commissions and other fees, to satisfy all or a portion of the order to buy or

(ii)after having received an order to sell a security that it holds for execution on the Exchange, contemporaneously sells the security as principal at the same price, exclusive of markups, markdowns, commissions and other fees, to satisfy all or a portion of the order to sell.* *(2) A last sale report for only the initial principal leg of the transaction shall be submitted in accordance with the rules and procedures of the market where the transaction occurred. The second “riskless principal” leg of the transaction must still be submitted and executed on the Exchange as with any other order, but the Exchange will not report that leg of the transaction to the respective consolidated tape. As applicable, the riskless principal leg may be submitted to the Exchange for execution as either

(i)a non-tape, clearing-only order with a “CTA no-print” indicator if a clearing report is necessary to clear the transaction; or

(ii)a non-tape, non-clearing order with a “CTA no-print” indicator if a clearing report is not necessary to clear the transaction.* *(3) A member must have written policies and procedures to assure that its riskless principal transactions comply with this Section. At a minimum these policies and procedures must require that the customer order be received prior to the offsetting transactions, and that the offsetting transactions be executed contemporaneously with the original transaction. A member must also have supervisory systems in place that produce records that enable the member and the Exchange to accurately and readily reconstruct, in a time-sequenced manner, all orders for which a member relies on the riskless principal exemption.* II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change, as amended, and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in item III below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Under the proposed rule change, if a member of the Exchange is acting as principal for its own account, its trade would be considered a “riskless principal transaction” to the extent that:

(i)After having received an order to buy a security that the member holds for execution on the Exchange, the member purchases the security from another firm or market to offset a contemporaneous sale to satisfy all or a portion of the original buy order at the same price, exclusive of any markup, markdown, commission, or other fee; or

(ii)after having received an order to sell a security that the member holds for execution on the Exchange, the member sells the security to another firm or market to offset a contemporaneous purchase to satisfy all or a portion of the original sell order at the same price, exclusive of any markup, markdown, commission, or other fee. The Exchange is proposing to adopt a trade reporting rule applicable to riskless principal transactions in any securities traded on the Exchange. 4 Under this proposal, the “initial principal” leg (the “first leg”) of the transaction is reported to the consolidated tape by whichever market on which the trade occurs. Pursuant to this rule filing, the BSE member would apply a special marker to the second “riskless principal” leg (the “second leg”) and the BSE would not report that leg to the consolidated tape. The first leg of the transaction will continue to be matched and executed on the Exchange or on another market, whichever the case may be, and disseminated for publication to the respective consolidated tape in accordance with the relevant market's requirements. For the second leg of the transaction, to the extent that any of the order is offset by the initial principal execution, the member would designate in its trade report to the BSE the proprietary order as riskless. According to BSE, this BEACON 5 modification will contemporaneously prevent priority violations. 4 The Exchange currently trades on an unlisted trading privilege basis securities that are listed on the New York Stock Exchange or “Tape A” program, the American Stock Exchange or the “Tape B” program, and the Nasdaq Stock Market or “Tape C” program. 5 The Boston Exchange Automated Communication Order-routing Network, which is known as BEACON, is the order-routing and execution system utilized on the Exchange. The Exchange represents that BEACON will systematically capture every first leg of every transaction even if it occurs on another market. 6 BEACON will automatically match the first and second leg of the transaction by utilizing tag numbers to ensure that the special marker was used in a riskless principal transaction. More specifically, where a BSE member is executing a trade on another market, BEACON will automatically attach a tag number. This tag number will be matched to the second leg of the transaction. The Exchange will not report the second leg of the transaction to the respective consolidated tape. 6 *See* Letter from John Boese, Chief Regulatory Officer, BSE, to Michael Gaw, Senior Special Counsel, Division of Market Regulation, Commission, dated February 10, 2005. Example: A member receives an order to sell 100 shares at $50 and holds that order for execution on the Exchange. Thereafter the member, as principal, sells 100 shares to another firm at $50 (the first leg) and then, as principal, fills the original order at $50 (the second leg). The member designates the filling of the customer order (the second leg) as the “riskless principal” leg of a riskless principal transaction. The Exchange reports the first leg of the transaction to the consolidated tape, but not the second leg. Procedurally, if the first leg of the transaction occurs on the Exchange, the Exchange will report the first leg of the transaction to the consolidated tape pursuant to its rules. If the first leg of the transaction occurs on another market, that market would report the trade to the consolidated tape according to its rules. The BSE member who has a duty to report the execution 7 shall report the execution as either:

(i)a non-tape, clearing-only order with a capacity indicator of “CTA no-print,” if a clearing report is necessary to clear the transaction; or

(ii)a non-tape, non-clearing order with a capacity indicator of “CTA no-print,” if a clearing report is not necessary to clear the transaction. 7 *See* Rules of the Board of Governors of the Boston Stock Exchange, Chapter II, Dealings on the Exchange, Section 2. In addition to the automatic matching of orders, the Exchange will conduct surveillance to determine that both legs of a riskless principal transaction correlate to each other, particularly if one leg occurs on another market. The Exchange will also review to see that members implement written policies and procedures as described below to assure compliance with this proposed rule. To determine that there is a matched order, the two legs of the riskless principal transaction would be electronically reviewed as part of the audit trail used by the Exchange to surveil and regulate trading. On a daily basis, for each execution with an indicator of “CTA no-print,” the electronic review will confirm that a contemporaneous order was placed after the customer order was received and the order was executed prior to the execution of the customer order. The electronic review will also confirm that each leg of the riskless principal transaction was executed at the identical price and size. If there is no corresponding matched order, an exception will be generated, and surveillance will conduct a manual review to determine whether the execution was actually a riskless principal transaction and whether the execution should be considered a covered sale. The Exchange believes that, if the member complies with all aspects of the proposed rule, the sell side of the second leg would be a “recognized riskless principal sale,” as defined in Rule 31(a)(14) of the Act. 8 Therefore, this sale would not be a “covered sale” as defined in Rule 31(a)(6) under the Act 9 for which the Exchange would incur a liability to the Commission under section 31 of the Act. 10 Accordingly, the second “riskless principal” leg would not increase the amount of fees that the member owes the Exchange pursuant to Chapter XXIII, section 2, of the Exchange's rules. 8 17 CFR 240.31(a)(14). 9 17 CFR 240.31(a)(6). 10 15 U.S.C. 78ee. 2. Statutory Basis The Exchange believes that the proposed rule change, as amended, consistent with section 6(b) of the Act, 11 in general, and section 6(b)(5) of the Act, 12 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. 11 15 U.S.C. 78f(b). 12 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition BSE does not believe that the proposed rule change, as amended, will impose any inappropriate burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received from Members, Participants, or Others No written comments were solicited or received in connection with the proposed rule change, as amended. III. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-BSE-2004-27 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-BSE-2004-27. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of BSE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-BSE-2004-27 and should be submitted on or before March 24, 2005. IV. Commission Findings and Order Granting Accelerated Approval of Proposed Rule Change The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. 13 Specifically, the Commission believes the proposal is consistent with section 6(b)(5) of the Act, 14 which requires that the rules of an exchange be designed, among other things, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. 13 In approving this proposed rule change, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). 14 15 U.S.C. 78f(b)(5). The rule proposed by BSE is substantially similar to NASD Rule 6420(d)(3)(B) relating to the reporting of riskless principal transactions. The Commission previously has found the NASD riskless principal rule to be consistent with the Act. 15 The Commission believes that BSE's proposal raises no new or significant regulatory issues and is also, therefore, consistent with the Act. Based on the information provided by BSE in support of this proposed rule change, the proposal appears reasonably designed to ensure that the two contemporaneous trades for which an Exchange member acts as principal can be matched and are indeed riskless for the member. 15 *See, e.g.* , Securities Exchange Act Release No. 41606 (July 8, 1999), 64 FR 38226 (July 15, 1999). Assuming all the requirements of BSE's rule are met, a second offsetting sale occurring on the Exchange would be a “recognized riskless principal sale” as defined in Rule 31(a)(14) under the Act. 16 Therefore, the sale also would be an “exempt sale” as defined in Rule 31(a)(11) under the Act 17 and not a “covered sale” as defined in Rule 31(a)(6) under the Act. 18 The Commission notes, however, that BSE members must have written policies and procedures and supervisory systems in place before reporting trades as riskless pursuant to Chapter II, Section 43 of the Exchange's rules. 16 17 CFR 240.31(a)(14). 17 17 CFR 240.31(a)(11). 18 17 CFR 240.31(a)(6). The Commission finds good cause for approving the proposed rule change, as amended, prior to the 30th day after publication in the **Federal Register** . The Commission believes that the rule proposed by BSE is substantially similar to NASD Rule 6420(d)(3)(B) and thus raises no new or significant regulatory issues. As such, the Commission believes that accelerated approval is appropriate. *It is therefore ordered,* pursuant to section 19(b)(2) of the Act, 19 that the proposed rule change (File No. SR-BSE-2004-27), as amended, is approved on an accelerated basis. 19 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 20 20 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-847 Filed 3-2-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51252; File No. SR-CBOE-2004-16] Self-Regulatory Organizations; Chicago Board Options Exchange, Inc.; Order Setting Aside Earlier Order Issued by Delegated Authority and Granting Approval to a Proposed Rule Change and Amendment No. 1 Thereto Relating to an Interpretation of Paragraph

(b)of Article Fifth of Its Certificate of Incorporation and an Amendment to Rule 3.16(b) February 25, 2005. I. Introduction On March 4, 2004, the Chicago Board Options Exchange, Inc. (“CBOE”) filed with the Securities and Exchange Commission (“Commission”), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Exchange Act”), 1 and Rule 19b-4 thereunder, 2 a proposed rule change to amend CBOE Rule 3.16(b). The proposed amendment would interpret certain terms used in paragraph

(b)of Article Fifth of the CBOE Certificate of Incorporation (“Article Fifth(b)”). On April 9, 2004, the CBOE filed Amendment No. 1 to the proposed rule change. 3 The proposed rule change, as amended, was published for comment in the **Federal Register** on May 3, 2004. 4 The Commission received one comment letter on the proposed rule change. 5 On May 25, 2004, the CBOE submitted a response to the comment letter, 6 and two of the original commenters replied to CBOE's response in a letter submitted on June 14, 2004. 7 On July 15, 2004, the Commission approved, by authority delegated to the Division of Market Regulation, the proposed rule change, as amended. 8 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Letter from Arthur B. Reinstein, Deputy General Counsel, CBOE, to Lisa N. Jones, Special Counsel, Division of Market Regulation (“Division”), Commission, dated April 8, 2004 (“Amendment No. 1”). 4 Securities Exchange Act Release No. 49620 (April 26, 2004), 69 FR 24205 (May 3, 2004). 5 Letter from Thomas A. Bond, Norman Friedland, Gary P. Lahey, Marshall Spiegel, Anthony Arciero, Peter C. Guth, Robert Kalmin, Sheldon Weinberg, David Carman and Jeffrey T. Kaufmann, Members, CBOE, to Jonathan G. Katz, Secretary, Commission, dated April 28, 2004 (“April 28th Comment Letter”). This comment letter includes comments on another CBOE proposed rule change, SR-CBOE-2002-01, that was withdrawn on April 7, 2004. *See* Letter from Arthur B. Reinstein, Deputy General Counsel, CBOE, to Lisa N. Jones, Special Counsel, Division, Commission, dated April 6, 2004. *See also* letters from Marshall Spiegel to Margaret H. McFarland, dated November 4, 2004 (“November 2004 Letter”) and December 22, 2004 (“December 2004 Letter”). 6 Letter from Joanne Moffic-Silver, General Counsel and Corporate Secretary, CBOE, to Jonathan G. Katz, Secretary, Commission, dated May 24, 2003. 7 Letter from Thomas A. Bond and Gary P. Lahey, Members, CBOE, to Jonathan G. Katz, Secretary, Commission, dated June 8, 2004 (“June 8th Letter”). 8 Securities Exchange Act Release No. 50028 (July 15, 2004), 69 FR 43644 (July 21, 2004) (“July 15th Order”). On August 23, 2004, Marshall Spiegel (“Petitioner”) filed with the Commission a notice of intention to file a petition for review of the Commission's approval by delegated authority, 9 and on September 13, 2004, Petitioner filed a petition for review. 10 On September 17, 2004, the Commission acknowledged receipt of these documents from Petitioner and confirmed that the automatic stay provided in Rule 431(e) of the Commission's Rules of Practice was in effect. 11 9 Letter from Marshall Spiegel, CBOE Equity Member, to Margaret H. McFarland, Deputy Secretary, Office of Secretary, Commission, dated August 23, 2004. 10 Letter from Marshall Spiegel, CBOE Equity Member, to Margaret H. McFarland, Deputy Secretary, Office of the Secretary, Commission, dated September 13, 2004 (“Petition for Review”). 11 Letter from Margaret H. McFarland, Deputy Secretary, Office of the Secretary, Commission, to Marshall Spiegel, CBOE Equity Member, dated September 17, 2004. The Commission has considered the petition and for the reasons described below, has determined to set aside the earlier action taken by delegated authority and grant approval of the proposed rule change, as amended. 12 12 *See* July 15th Order, *supra* note 8. II. Description of the Proposed Rule Change A. Background As compensation for the time and money that the Board of Trade of the City of Chicago (“CBOT”) had expended in the development of the CBOE, a member of the CBOT is entitled to become a member of the CBOE without having to acquire a separate CBOE membership. This entitlement is established by Article Fifth(b) of the CBOE's Certificate of Incorporation (“Article Fifth(b)”). Article Fifth(b) provides, in relevant part: [E]very present and future member of the [CBOT] who applies for membership in the [CBOE] and who otherwise qualifies shall, so long as he remains a member of [the CBOT], be entitled to be a member of the [CBOE] notwithstanding any limitation on the number of members and without the necessity of acquiring such membership for consideration or value from the [CBOE] (“Exercise Rights”). Article Fifth(b) also explicitly states that no amendment may be made to it without the approval of at least 80% of those CBOT members who have “exercised” their right to be CBOE members and 80% of all other CBOE members. In 1992, the Commission approved the CBOE's proposed interpretation of the meaning of the term “member of the [CBOT]” as used in Article Fifth(b). The interpretation proposed by the CBOE was one agreed upon by the CBOE and the CBOT, is embodied in an agreement dated September 1, 1992 (“1992 Agreement”), and is reflected in CBOE Rule 3.16(b). CBOE Rule 3.16(b) states that “for the purpose of entitlement to membership on the [CBOE] in accordance with * * * [Article Fifth(b)] * * * the term “member of the [CBOT],” as used in Article Fifth(b), is interpreted to mean an individual who is either an “Eligible CBOT Full Member” or an “Eligible CBOT Full Member Delegate,” as those terms are defined in the [1992 Agreement] * * * 13 13 In the 1992 Agreement, an “Eligible CBOT Full Member” is defined as an individual who at the time is the holder of one of 1,402 existing CBOT full memberships (“CBOT Full Memberships”), and who is in possession of all trading rights and privileges of such CBOT Full Memberships. An “Eligible CBOT Full Member Delegate” is defined as the individual to whom a CBOT Full Membership is delegated ( *i.e.,* leased) and who is in possession of all trading rights and privileges appurtenant to such CBOT Full Membership. B. CBOE's Current Proposal The CBOE is again proposing an interpretation of the term “member of the [CBOT]” as used in Article Fifth(b). The CBOE believes that this interpretation is necessary to clarify which individuals will be entitled to the Exercise Right upon distribution by the CBOT of a separately transferable interest (“Exercise Right Privilege”) representing the Exercise Right component of a CBOT membership. The CBOT's intention to issue these Exercise Right Privileges is set forth in an agreement dated September 17, 2003 between the CBOE and the CBOT (“2003 Agreement”). In the 2003 Agreement, the CBOE and CBOT agreed on an interpretation of the term “member of the [CBOT]” as used in Article Fifth(b) once these Exercise Right Privileges are issued. Specifically, the 2003 Agreement modifies the definitions of “Eligible CBOT Full Member” 14 and “Eligible CBOT Full Member Delegate” used in the 1992 Agreement. The CBOE's proposed rule change would revise Rule 3.16(b) to incorporate the definitions of “Eligible CBOE Full Member” and “Eligible CBOT Full Member Delegate” found in the 2003 Agreement. 14 Under the 2003 Agreement, an individual would be deemed an Eligible CBOT Full Member (and therefore a “member of the [CBOT]” under Article Fifth (b)) only if such individual:

(1)Held one Exercise Right Privilege;

(2)held a CBOT Full Membership, which gives him all of the other rights and privileges appurtenant to CBOT membership; and

(3)meets CBOT membership and eligibility requirements. The holder of a CBOT Full Membership in respect of which an Exercise Right Privilege has not been issued shall qualify as an Eligible CBOT Full Member if the requirements of the 1992 Agreement are still satisfied without such holder having to possess an Exercise Right Privilege. III. Discussion and Commission Findings As noted above, the Commission received a comment letter and a follow up letter on the proposed rule change from several members of the CBOE. 15 In addition, the Commission received a petition for review of the action taken by delegated authority. 16 Discussed below are these commenters' and the Petitioner's arguments as to why the Commission should not approve the proposed rule change. 15 *See* April 28th Comment Letter, *supra* note 5 and June 8th Letter, *supra* note 7. 16 *See* Petition for Review, *supra* note 10. A.The Commission's Jurisdiction to Consider the Proposed Rule Change The Petitioner argues that the Commission should not approve the proposed rule change because the filing proposes to interpret contracts and instruments created in and under Illinois law and subject to “interpretation” under Illinois and Delaware state law. 17 Thus, Petitioner contends that the Commission is overstepping its jurisdiction and should not approve the proposal on that basis. In this regard, section 3(a)(27) of the Exchange Act defines the “rules of an exchange” to include, among other things, the constitution, articles of incorporation, and instruments corresponding to the foregoing of an exchange, as well as the stated policies, practices, and interpretations of such exchange. 18 Rule 19b-4 under the Exchange Act 19 defines the term “stated policy, practice, or interpretation” broadly to include 17 *See* Petitioner's Statement in Opposition to Action Made by Delegated Authority, October 27, 2004, at 2 (“Statement in Opposition”). 18 15 U.S.C. 77c(a)(27). 19 17 CFR 240.19b-4.

(1)Any statement made generally available to

(a)the membership of the self-regulatory organization (“SRO”), or

(b)to a group or category of persons having or seeking access to facilities of the SRO, that establishes or changes any standard, limit, or guideline with respect to the rights, obligations, or privileges of such persons, or

(2)The meaning, administration, or enforcement of an existing SRO rule. The CBOE's Certificate of Incorporation, as well as the interpretation in CBOE Rule 3.16 of terms used in the Certificate, are “rules of the exchange.” As such, section 19(b)(1) of the Exchange Act requires CBOE to file with the Commission any proposed changes to those rules. 20 Once filed, section 19(b) of the Exchange Act requires the Commission to publish notice of the proposed rule change and approve it, or institute proceedings to determine whether the proposed rule change should be disapproved. Accordingly, the Commission believes that the Exchange Act establishes clearly that the proposed rule change is within its jurisdiction. 20 15 U.S.C. 78s(b)(1). B. Petitioner's Right to Receive Notice of Commission Approval of the Proposed Rule Change The Petitioner also claims that it is premature for the Commission to consider this Petition for Review because the Commission never served actual notice on him of its approval of CBOE's proposed rule change. 21 There, however, is no requirement that the Commission notify those who comment on a proposed rule change that it is approved. Instead, the Commission publishes its approval orders in the **Federal Register** and posts them on its Web site. Accordingly, the Commission does not believe it is premature to consider the petition for review. 21 *See* Petition for Review, *supra* note 10, at 3. C.The Commission Finds CBOE's Determination That the Proposal is an Interpretation of Article Fifth(b) To be Consistent With the Exchange Act The commenters' and Petitioner's principal argument as to why the Commission should not approve the CBOE's proposed rule change is that the proposed rule change does not constitute an interpretation of Article Fifth(b) as CBOE claims, but an amendment to Article Fifth(b) instead. Thus, Petitioner states that the CBOE's Board of Directors (“Board”) acted inconsistently with the CBOE's Certificate of Incorporation by failing to obtain the approval of 80% of those CBOT members who exercised their right to be CBOE members and 80% of other CBOE members. 22 The commenters to the CBOE proposal made similar arguments as to why the Commission should not approve the proposal. 23 In this regard, the Petitioner's legal memorandum states that the Commission's order is not in compliance with section 19(b)(1) of the Exchange Act because the order purports to decide fundamental issues of corporate governance of the CBOE, which are matters that should fall within the province of Delaware law and the state courts, not the Commission. 24 22 *See* Statement in Opposition, *supra* note 17, at 2. 23 For example, commenters argued that the proposed rule change is an amendment to Article Fifth(b) in that the 2003 Agreement states that disputes concerning the definitions of what constitutes a member of the CBOT will be subject to arbitration, which commenters believed would supersede the current membership process under Article Fifth(b) in which an 80% member vote is required. *See* April 28th Comment Letter, supra note 5. The Commission notes that CBOE has not proposed to change the terms of Article Fifth(b), which still applies. Further, the Commission is not approving or disapproving the terms of the 2003 Agreement. 24 *See* Legal Memorandum of Points and Authorities in Support of the Statement of Petitioner Marshall Spiegel in Opposition to Staff Action, October 26, 2004, at 6 (“Legal Memorandum”). The CBOE filed a proposed rule change to adopt an interpretation of Article Fifth(b) by amending CBOE Rule 3.16. Section 19(b) of the Exchange Act 25 requires that the Commission approve an exchange's proposed rule change if it finds that the proposal is consistent with the requirements of the Exchange Act, and the rules thereunder applicable to exchanges. Among other things, national securities exchanges are required under section 6(b)(1) of the Exchange Act 26 to comply with their own rules. Thus, if CBOE has failed to comply with its own Certificate of Incorporation, which is a rule of the exchange, the Commission believes that this may not only violate state corporation law, but it would also be inconsistent with the Exchange Act and, thus, the Commission could not approve the proposed rule change under section 19. 25 15 U.S.C. 78s(b). 26 15 U.S.C. 77(f)(b)(1). The Commission has reviewed the record in this matter and believes that the CBOE provides sufficient basis on which the Commission can find that, as a federal matter under the Exchange Act, the CBOE complied with its own Certificate of Incorporation in determining that the proposed rule change is an interpretation of, not an amendment to, Article Fifth(b). The Commission finds persuasive CBOE's analysis of the difference between “interpretations” and “amendments,” 27 and the letter of counsel that concludes that it is within the general authority of the CBOE's Board to interpret Article Fifth(b) and that the “Board's interpretation of Article Fifth(b) contemplated by the [2003 Agreement] does not constitute an amendment to the Certificate and need not satisfy the voting requirements of Article Fifth(b) that would apply if the Article were being amended.” 28 27 *See* Statement of Chicago Board Options Exchange in Support of Approval of Rule Under Delegated Authority, October 26, 2004, at 6 (“CBOE's Statement in Support of Approval”). 28 Letter from Michael D. Allen, Richard, Layton & Finger, to Joanne Moffic-Silver, General Counsel and Corporate Secretary, CBOE (June 29, 2004). Petitioner argues that the 2003 Agreement denigrates the definition of CBOT member “by permitting CBOT members to carve up membership rights and sell them separately to third parties without extinguishing their rights to exercise CBOE membership under Article Fifth(b),” and that “[t]his fundamental change and augmentation in the economic and legal rights of CBOT members and the structure of CBOT membership materially and profoundly affect the economic and legal rights of CBOE membership and governance.” 29 Accordingly, Petitioner states that “[i]t cannot be fairly concluded that by altering the economic and corporate control relationships among CBOT members, third parties and current CBOE members in such material ways does not constitute an amendment to the provisions of Article Fifth(b).” 29 Legal Memorandum, *supra* note 24, at 4-5. The Commission does not believe that Petitioner's argument refutes, to any degree, CBOE's analysis of why its proposed rule change is an interpretation to Article Fifth(b), not an amendment. As discussed further below, the Commission does not believe that either the 2003 Agreement or the proposed rule change alter CBOT membership in the way Petitioner claims. To the extent changes to CBOT memberships are being made, they are being done by the CBOT as part of its restructuring. Once the CBOT issues the exercise rights, which it states is its intent, the CBOE believes it must interpret Article Fifth(b) to address the ambiguity with respect to the definition of member of the CBOT that will be created by CBOT's actions. 30 The Commission agrees that it is circumstances external to this proposed rule change that present the question about what it means to be a “member of the CBOT” under Article Fifth(b). 30 *See id.* at 7. Petitioner's legal memorandum also states that by purporting to decide issues of corporate governance, the July 15th Order 31 materially compromises the rights of CBOE members to obtain judicial review of those issues. Petitioner argues that the issues do not implicate market integrity concerns under the Exchange Act and thus the Commission should maintain neutrality on these corporate governance issues. 32 Except to the extent that the Commission's analysis of state law informs its finding that, as a federal matter under the Exchange Act, the CBOE complied with its own Certificate of Incorporation in determining that the proposed rule change is an interpretation of, not an amendment to, Article Fifth(b), the Commission is not purporting to decide a question of state law. 33 31 *See* July 15th Order, *supra* note 8. 32 *See* Legal Memorandum, *supra* note 24, at 6. 33 CBOE Rule 6.7A states that: No member or person associated with a member shall institute a lawsuit or other legal proceeding against the Exchange or any director, officer, employee, contractor, agent or other official of the Exchange or any subsidiary of the Exchange, for actions taken or omitted to be taken in connection with the official business of the Exchange or any subsidiary, except to the extent such actions or omissions constitute violations of the federal securities laws for which a private right of action exists. Prior to April 2002, CBOE Rule 6.7A only precluded lawsuits against directors, officers, employees, contractors, agents and other officials of the CBOE. *See* Securities Exchange Act Release No. 37421 (July 11, 1996), 61 FR 37513 (July 18, 1996). In April 2002, CBOE filed a proposed rule change to extend the prohibition to lawsuits against the Exchange. This change was filed under Section 19(b)(3)(A) of the Exchange Act and, therefore, became effective upon filing. *See* Securities Exchange Act Release No. 45837 (Apr. 26, 2002), 67 FR 22142 (May 2, 2002) (notice of CBOE's proposed rule change). Accordingly, the Commission did not issue an order finding that the rule change is consistent with the requirements of the Exchange Act. When there is no approval order, a court considering a contention that a rule is not consistent with the requirements of the Exchange Act, or that the rule does not preempt state law, will not have the authoritative views of the Commission on the relevant issues, and will have to resolve those claims *de novo.* D.The CBOT Restructuring 1. The Commission is Not Approving the CBOT's Breaking of Its Memberships into Separate, Transferable Interests Petitioner's legal memorandum states that the 2003 Agreement amends Article Fifth(b) by redefining the term CBOT member in a manner other than was originally contemplated when Article Fifth(b) was adopted in 1972, when all of the rights and benefits that constituted a CBOT membership were an integrated whole that could not be separated and transferred to third parties, as was further confirmed in the 1992 Agreement. 34 The legal memorandum also states that the 2003 Agreement now permits CBOT members to divide membership rights and sell them separately to third parties without extinguishing the right to exercise and become a CBOE member under Article Fifth(b). 35 34 *See* Legal Memorandum, *supra* note 24, at 4. 35 *See id.* The Commission believes that the Petitioner mischaracterizes the 2003 Agreement in several respects. First, the 2003 Agreement does not *permit* the CBOT to divide membership rights by issuing Exercise Right Privileges. The 2003 Agreement begins by stating that the CBOT intends to issue these Exercise Right Privileges. The purpose of the agreement is to resolve who will be a “member of the [CBOT],” and therefore entitled to the Exercise Right under Article Fifth(b), following the issuance of these Exercise Right Privileges. In addition, the Commission does not believe that the 1992 Agreement confirms that all the rights and benefits that constitute a CBOT membership were an integrated whole. To the contrary, the 1992 Agreement was necessitated by the division of CBOT memberships into trading rights that could be leased and ownership rights. 36 36 In 1992, the CBOE filed a proposed rule change with the Commission that embodied in CBOE Rule 3.16 an interpretation of “member of the [CBOT]” as used in Article Fifth(b). This interpretation was agreed upon by the CBOT and CBOE in a 1992 agreement between the exchanges. The Commission approved the CBOE's proposed rule change. *See* Securities Exchange Act Release No. 32430 (June 8, 1993), 58 FR 32969 (June 14, 2993) (SR-CBOE-92-42). The Commission notes that it is required under the Exchange Act to make a finding that *CBOE's* proposed interpretation is consistent with the CBOE's own rules, and the Exchange Act. The Commission is not approving either the *CBOT's* action to separate or to transfer interests in the Exercise Right or the 2003 Agreement. With regard to Petitioner's argument that the 2003 Agreement is not consistent with the 1992 Agreement, and thus cannot be an interpretation of Article Fifth(b), an exchange may propose a new interpretation or new rule that is, in practice, fundamentally different from a previous interpretation or rule, so long as the proposed interpretation is consistent with the Exchange Act. 2. The Commission Does Not Have to Consider the CBOT's Restructuring The commenters argued that the CBOT's proposed changes to its corporate structure, which are pending, are an amendment to Article Fifth(b) of the CBOE's Certificate of Incorporation because, following the demutualization of the CBOT, CBOT will no longer be a membership organization. 37 Commenters also contended that “[w]hen the CBOE was created in 1972, the equity of the CBOT was only contained in the ‘member of the Board of Trade.’ ” 38 Also, because CBOT is proposing in its demutualization that the current members of the CBOT would receive approximately 77% of the equity in a new holding company, the definition of “member of the Board of Trade” as used in Article Fifth(b) of the CBOE's Certificate of Incorporation is being amended. 39 Commenters also claimed that because CBOT's demutualization would affect the CBOT's governance, the CBOE's proposed rule change is an amendment to Article Fifth(b). 40 37 *See* April 28th Comment Letter, *supra* note 5, at 2. 38 *Id.* 39 *See id.* 40 *See id.* Similarly, Petitioner asserts in his legal memorandum that the 2003 Agreement denigrates the definition of CBOT member “by permitting CBOT members to carve up membership rights and sell them separately to third parties without extinguishing the right to exercise and become a CBOE member under Article Fifth(b).” 41 The Commission, however, does not believe that the proposed rule change is what allows the CBOT to divide equity ownership in the CBOT into several parts and issue separately transferable securities representing each part. The proposed rule change merely sets forth how the CBOE proposes to apply its rules once the CBOT issues such securities, and does not ask the Commission to approve any action being taken by the CBOT with regard to its memberships. 41 Legal Memorandum, *supra* note 24, at 4. The Petitioner asserts that the CBOT has moved ahead with its demutualization by separating the Exercise Right as described in this proposal, and opening its market to the trading of memberships without Exercise Rights and the trading of the Exercise Right itself. 42 Petitioner further argues in his legal memorandum that third parties controlling membership Exercise Rights will have substantial powers and influence over the future course of CBOE governance, and that altering the “economic and corporate control relationships among CBOT members, third parties and current CBOE members in such a material way” constitutes an amendment to Article Fifth(b). 43 The Petitioner also believes that the dilution of CBOT equity through an initial public offering expected in 2005 will allow less costly access to CBOE. 44 Thus, according to Petitioner's legal memorandum, the CBOT's impending restructuring is material to the Commission's discussion on the issues presented in the proposed rule change. 45 42 *See* Statement in Opposition, *supra* note 17, at 5. 43 *See* Legal Memorandum, *supra* note 24, at 5. 44 *See* Statement in Opposition, *supra* note 17, at 11. 45 *See* Legal Memorandum, *supra* note 24, at 16. The Commission does not believe that changes CBOT makes to its memberships, such as CBOT's pending restructuring, could be considered an amendment to CBOE's Certificate of Incorporation. The CBOT and CBOE are separate corporate entities. The Commission does not believe that any changes that the CBOT makes to its corporate structure should, by themselves, be considered a change to the CBOE's Certificate of Incorporation. The Commission is not approving in this order the CBOT's separation of the Exercise Rights or any other aspect of its restructuring. 46 46 Petitioner argues in his legal memorandum that the CBOT has pending with the Commission a Form S-4, which he believes is in the final stages of review. *See* Legal Memorandum, *supra* note 24, at 6. Thus, Petitioner believes that the CBOT's restructuring of its membership materially affects the rights of CBOE members under Article Fifth(b). *See id.* The Commission review of the CBOT's Form S-4 is to ensure the adequacy of disclosure about the CBOT's actions and therefore it is unclear what bearing the Commission's determination with regard to this proposal would have on the Form S-4 or CBOT's restructuring. E. The Commission Does Not Have to Consider Proposed Rule Changes That CBOE May File in the Future The Petitioner contends that the Commission should require the CBOE to file other agreements that the Petitioner considers relevant to the proposed rule change the Commission is currently considering. 47 In particular, Petitioner objects to the CBOE's withdrawal of its proposed rule change SR-CBOE-2002-01. 48 Petitioner claims that the interpretation of Article Fifth(b) in the August 7, 2001 agreement between the CBOE and CBOT is integrally related to the proposed rule change. 49 Subsequently, Petitioner similarly argued that the Commission should require the CBOE to file this August 7, 2001 agreement, as well as other subsequent, related agreements because 50 the CBOE and CBOT are acting to effectuate the terms of such agreements. Petitioner contends that the CBOE and CBOT should not effectuate the terms of these agreements until such agreements are filed and approved by the Commission. 47 *See* Reply of Marshall Spiegel to CBOE Response of November 10, 2004, November 17, 2004, at 3 (“Petitioner's November 2004 Reply”). *See also* November 2004 Letter, *supra* note 5; December 2004 Letter, *supra* note 5. 48 *See* November 2004 Letter, *supra* note 5. 49 CBOE explains that it withdrew SR-CBOE-2002-01 because CBOT's demutualization plans were suspended. *See* CBOE's Statement in Support of Approval, *supra* note 27, at 10. 50 *See* December 2004 Letter, *supra* note 5. As discussed above, section 19(b)(1) of the Exchange Act requires CBOE to file with the Commission any proposed changes to its rules. Once filed, section 19(b) requires the Commission to take certain actions. The Commission is not required to consider proposed rule changes that may be filed by an SRO at a future date. The Commission also notes that agreements between SROs and third parties are not, *per se,* proposed rule changes that must be filed with the Commission. In fact, as noted above, the Commission is not approving the 2003 Agreement, but is approving only the interpretation of Article Fifth(b), which references certain terms as used in the 2003 Agreement. Whether or not agreements entered into by the CBOE are proposed rule changes is a judgment that, in the first instance, CBOE must make. To the extent, however, that any part of an agreement is a “policy, practice, or interpretation” of CBOE's rules and that “policy, practice, or interpretation” has not been approved by the Commission it would be a violation of section 19(b) of the Exchange Act and the Commission could take appropriate action against the CBOE. F.The Commission Does Not Have to Find That the Proposed Rule Change is Consistent with the 1992 Agreement Commenters have contended that the entire 1992 Agreement is part of CBOE Rule 3.16(b) and, therefore, any change to the terms of that agreement is an amendment of Article Fifth(b), which Rule 3.16(b) interprets. 51 In particular, commenters noted that the 1992 Agreement states that a CBOT “exercise member shall not have the right to transfer * * * their CBOE regular memberships or any other trading rights and privileges appurtenant thereto.” 52 Petitioner argues that the 2003 Agreement is not consistent with the 1992 Agreement because the 1992 Agreement prohibits the un-bundling of CBOE trading rights. 53 The commenters also contended that the proposed rule change allows the CBOT to demutualize into A, B, and C shares, which are separately transferable, in contravention of the 1992 Agreement. 54 Similarly, Petitioner asserts that the CBOE's new interpretation of Article Fifth(b) contradicts the 1992 Agreement's meaning of what a CBOT member is and changes the structure of CBOT memberships in a way not contemplated in Article Fifth(b). 55 51 *See* April 28th Comment Letter, *supra* note 5, at 2-3. 52 *See* 1992 Agreement, Section 3(a). 53 *See* Statement in Opposition, *supra* note 17, at 11. 54 *See* April 28th Comment Letter, *supra* note 5, at 2. 55 *See* Statement in Opposition, *supra* note 17, at 11. The Commission notes that it did not approve the 1992 Agreement itself. Instead, the Commission approved CBOE Rule 3.16(b), which refers to the 1992 Agreement only for the definitions of “Eligible CBOT Full Member” and “Eligible CBOT Full Member Delegate” contained in that agreement. Thus, the Commission disagrees with commenters' contention that the entire 1992 Agreement is part of CBOE Rule 3.16(b). In addition, as discussed above, the Commission does not believe that the proposed rule change is what allows CBOT to demutualize and separate its memberships into A, B, and C shares. Because the 1992 Agreement is not part of the CBOE's rules, the Commission does not believe it is inconsistent with the Exchange Act if the new interpretation of Article Fifth(b) contradicts that agreement. Agreements between the CBOE and CBOT may be amended without Commission approval unless such an amendment is a proposed rule change that must be filed under section 19(b). In the matter before it, the Commission must find that the CBOE's proposal is consistent with the Exchange Act, not the 1992 Agreement. G. The Commission Has Considered Whether the Proposed Rule Change Promotes Efficiency, Competition and Capital Formation Petitioner argues in its legal memorandum that the proposed rule change is not consistent with efficiency, competition and capital formation because CBOE's Board actions were contrary to its powers under the Certificate of Incorporation and adversely affect efficiency, competition and capital formation by creating legal uncertainties, necessitating litigation and compromising the rights of CBOE equity holders. 56 Section 3(f) of the Exchange Act requires, in the review of an SRO rule, the Commission to *consider* whether the action will promote efficiency, competition, and capital formation. 57 The Commission is not required to make a finding under section 3(f) in all cases. The Commission has considered whether the proposal promotes efficiency, competition, and capital formation, and believes that it is important to clarify that Petitioner's claim is not that the proposed interpretation itself compromises the rights of CBOE equity holders, but instead that the Board's action to approve the proposed interpretation without a vote under Article Fifth(b) has compromised CBOE equity holders' rights. 56 *See* Legal Memorandum, *Supra* note 24, at 7. 57 15 U.S.C. 78c(f). H. Prescribing New Conditions to Membership Not Permitted Without a Vote of CBOE Members The Petitioner's legal memorandum states that the 2003 Agreement is invalid because it alters the conditions of membership by introducing a new membership eligibility regime never before contemplated. 58 Petitioner contends that section 2.2 of CBOE's Constitution provides that “membership shall be limited to individuals, partnerships, and corporations, subject to their meeting the conditions of approval as stated in the Constitution.” 59 Petitioner then concludes that because section 2.1(a) of the CBOE Constitution provides that “membership in the Exchange shall be made available by the Exchange * * * and * * * shall be proposed by the Board and approved by the affirmative vote of the majority of voting members * * *” the CBOE Board usurped the exclusive power of the voting members of CBOE to make, alter, or repeal the Constitution. Section 2.2 of CBOE's Constitution, however, states in relevant part: 58 *See* Legal Memorandum, *Supra* note 24, at 14. 59 *See id.* at 14-15. “[m]embership shall be limited to individuals, partnerships, and corporations, subject to their meeting the conditions of approval as stated in the Constitution *and Rules* .” *Emphasis added* . Thus, a full reading of the CBOE's Constitution indicates that CBOE may introduce new conditions of membership in accordance with its rules which would not necessitate an affirmative majority vote by CBOE members. I. Timeliness of Petitioner's FOIA Requests The Petitioner argues that the Commission is depriving him of his due process rights by not timely complying with his FOIA requests. However, the records that Petitioner seeks in his FOIA requests are also available as part of the public file in this matter. Thus, the FOIA request is not relevant to Petitioner's due process rights. J. The Proposal Is Consistent With Section 6(b)(5) and Section 6(c)(3)(A) of the Exchange Act The Petitioner's legal memorandum states that the proposal is not consistent with section 6(b)(5) of the Exchange Act because it circumvents the requirements of CBOE's Certificate of Incorporation which cannot be deemed to promote just and equitable principles of trade or to protect investors and the public interest. 60 Section 6(b)(5) of the Exchange Act requires that the rules of the exchange be designed to, among other things, promote just and equitable principles of trade. 61 As discussed above, in approving the proposed rule change, the Commission is not deciding whether the Board's action was consistent with state corporation law. Rather, the Commission finds that the proposed interpretation of Article Fifth(b) is consistent with the Exchange Act, including section 6(b)(5). 60 *See id.* at 7. 61 15 U.S.C. 78f(b)(5). The Petitioner's legal memorandum states that the proposal is not consistent with section 6(c)(3)(A) of the Exchange Act “because the proposed rule does not address the qualifications of CBOT members to become CBOE members in accordance with the voting rights and procedures established by Article Fifth(b).” 62 Section 6(c)(3)(A) of the Exchange Act provides that an exchange “may deny membership to, or condition the membership of, a registered broker-dealer” if, among other things, such broker-dealer does not meet financial responsibility or operational capability standards set forth in the exchange's rules. 63 This provision is further qualified by section 6(c)(4) of the Exchange Act, which permits an exchange to limit the number of members of the exchange, provided that the exchange does not decrease the number of memberships below such number in effect on May 1, 1975. 64 Article Fifth(b) states that a member of the CBOT is entitled to be a member of the CBOE, notwithstanding any limitation on the number of CBOE members, if such CBOT member applies for membership and otherwise qualifies for membership. The CBOE is proposing to interpret the meaning of the term “member of the [CBOT]” as used in Article Fifth(b). This interpretation does not implicate Section 6(c)(3)(A) and is consistent with Section 6(c)(4) because the CBOE is not proposing to reduce the number of members of the exchange. 62 Legal Memorandum, *Supra* note 24, at 7-8. 63 15 U.S.C. 78f(c)(3)(A). 64 15 U.S.C. 78f(c)(4). VI. Conclusion It is therefore ordered, that the earlier action taken by delegated authority 65 is set aside and the proposed rule change (SR-CBOE-2004-16), as amended, is approved pursuant to section 19(b)(2) of the Exchange Act. 66 65 July 15th Order, *Supra* note 8. 66 15 U.S.C. 78s(b)(2). By the Commission. Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-833 Filed 3-2-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51255; File No. SR-EMCC-2004-01] Self-Regulatory Organizations; Emerging Markets Clearing Corporation; Notice of Withdrawal of a Proposed Rule Change To Amend Its Rules With Regard to the Imposition of Fines Upon Its Members February 25, 2005. On January 12, 2005, the Emerging Markets Clearing Corporation (“EMCC”) submitted to the Securities and Exchange Commission (“Commission”) a withdrawal of a proposed rule change which was filed with the Commission pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”). 1 The purpose of the proposed rule change was to expand EMCC's rules with regard to the imposition of fines upon its members and to more specifically identify the actions or inactions of members that will result in the imposition of fines. Notice of the proposal was published in the **Federal Register** on May 3, 2004. 2 1 15 U.S.C. 78s(b)(1). 2 Securities Exchange Act Release No. 49623 (April 27, 2004), 69 FR 24208. For the Commission by the Division of Market Regulation, pursuant to delegated authority. 3 3 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-842 Filed 3-2-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51256; File No. SR-ISE-2005-10] Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change and Amendment No. 1 Thereto by the International Securities Exchange, Inc., Relating to Listing Standards for Options on Narrow-Based Securities Indexes February 25, 2005. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on February 14, 2005, the International Securities Exchange, Inc. (“ISE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in items I, II, and III below, which items have been prepared by the ISE. On February 23, 2005, the Exchange amended its proposal. 3 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons, and is approving the proposal on an accelerated basis. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Amendment No. 1, dated February 23, 2005 (“Amendment No. 1”). In Amendment No. 1, the Exchange supplemented its description of the modified market capitalization methodology. Amendment No. 1 replaced the ISE's original filing in its entirety. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The ISE is proposing to amend its rules relating to listing standards for options on narrow-based security indexes. The text of the proposed rule change is as follows ( *italics* indicate additions; [brackets] indicate deletions): Rule 2002. Designation of an Index

(a)No Change.

(b)The Exchange may trade options on a narrow-based index pursuant to Rule 19b-4(e) of the Securities Exchange Act of 1934, if each of the following conditions is satisfied:

(1)No Change.

(2)The index is capitalization-weighted, price-weighted *,* [or] equal dollar-weighted, *or modified capitalization-weighted,* and consists of 10 or more component securities; (3)-(4) No Change.

(5)In a capitalization-weighted index *or a modified capitalization-weighted index,* the lesser of the five highest weighted component securities in the index or the highest weighted component securities in the index that in the aggregate represent at least 30 percent of the total number of component securities in the index each have had an average monthly trading volume of at least 2,000,000 shares over the past six months; (6)-(12) No Change.

(c)The following maintenance listing standards shall apply to each class of index options originally listed pursuant to paragraph

(b)above: (1)-(3) No Change.

(4)In a capitalization-weighted index *or a modified capitalization-weighted index,* the lesser of the five highest weighted component securities in the index or the highest weighted component securities in the index that in the aggregate represent at least 30 percent of the total number of stocks in the index each have had an average monthly trading volume of at least 1,000,000 shares over the past six months. In the event a class of index options listed on the Exchange fails to satisfy the maintenance listing standards set forth herein, the Exchange shall not open for trading any additional series of options of that class unless such failure is determined by the Exchange not to be significant and the SEC concurs in that determination, or unless the continued listing of that class of index options has been approved by the SEC under Section 19(b)(2) of the Exchange Act. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change, as amended, and discussed any comments it received on the proposed rule change, as amended. The text of these statements may be examined at the places specified in item III below. The self-regulatory organization has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The ISE is proposing to amend ISE Rule 2002(b). ISE Rule 2002(b) contains generic listing standards for narrow-based index options pursuant to Rule 19b-4(e) of the Act. 4 Rule 19b-4(e) provides that the listing and trading of a new derivative securities product by a self-regulatory organization shall not be deemed a proposed rule change, pursuant to paragraph (c)(1) of Rule 19b-4, 5 if the Commission has approved, pursuant to section 19(b) of the Act, 6 the self-regulatory organization's trading rules, procedures and listing standards for the product class that would include the new derivatives securities product, and the self-regulatory organization has a surveillance program for the product class. 7 Thus, ISE Rule 2002(b) allows the Exchange to list options on a narrow-based securities index pursuant to Rule 19b-4(e) under the Act without having to submit a formal rule change under section 19(b) of the Act as long as the requisite criteria provided for under ISE Rule 2002(b) are met. 8 One of these criteria, provided under ISE Rule 2002(b)(2), requires that the subject index be capitalization-weighted, price-weighted, or equal-dollar weighted and consist of ten or more component securities. 4 17 CFR 240.19b-4(e). 5 17 CFR 240.19b-4(c)(1). 6 15 U.S.C. 78s(b). 7 *See* Securities Exchange Act Release No. 40761 (December 8, 1998), 63 FR 70952 (December 22, 1998) (the “19b-4(e) Order”). Telephone conversation between Samir Patel, Assistance General Counsel, ISE, and Florence E. Harmon, Senior Special Counsel, Division of Market Regulation (“Division”), Commission, on February 24, 2005. 8 *See* Securities Exchange Act Release No. 47749 (April 25, 2003); 68 FR 23507 (May 2, 2003) (Order approving rules relating to trading options on indices, including ISE Rule 2002(b)—Generic Narrow-Based Index Option Listing Criteria). The Exchange hereby proposes to amend ISE Rule 2002(b)(2) to include a “modified capitalization-weighted” methodology as an acceptable generic listing standard for options on a narrow-based index. 9 The modified capitalization-weighted methodology is already an approved criterion for securities indexes 10 and is an established method of weighting securities indexes. 11 Accordingly, the ISE proposes to adopt the modified capitalization-weighted methodology as a standard for listing options on narrow-based indexes that satisfy the Exchange's generic listing criteria for options on narrow-based securities indexes under ISE Rule 2002(b). 9 A modified capitalization-weighted index is similar to a capitalization-weighted index where the components are weighted according to the total market value of the outstanding shares, except that an adjustment to the weighting of one or more of the component occurs. This type of methodology is expected to:

(1)Retain the economic attributes of capitalization weighting;

(2)promote portfolio weight diversification;

(3)reduce performance distortion by preserving the capitalization ranking of companies; and

(4)reduce market impact on the smallest component securities from necessary weight rebalancing. 10 The Chicago Board Options Exchange's (“CBOE”) generic listing standards for micro narrow-based securities indexes, CBOE Rule 24.2(d)(2), includes modified capitalization-weighted methodology as an approved criteria. *See* Securities Exchange Act Release No. 49932 (June 28, 2004); 69 FR 40994 (July 7, 2004) (Order approving CBOE's micro narrow-based securities index generic listing standards). 11 For example, the Nasdaq-100 Index is calculated using the modified capitalization-weighted methodology. 2. Basis The Exchange believes the proposed rule change, as amended, is consistent with the Act and the rules and regulations thereunder and, in particular, the requirements of section 6(b) of the Act. Specifically, the Exchange believes the proposed rule change, as amended, is consistent with section 6(b)(5) requirements that the rules of an exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism for a free and open market and a national market system, and, in general, to protect investors and the public interest. The adoption of the proposed rule change, as amended, would enable the ISE to begin listing and trading options on new narrow-based indexes. B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange believes that the proposed rule change, as amended, does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change, as amended. The Exchange has not received any unsolicited written comments from members or other interested parties. III. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-ISE-2005-10 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-ISE-2005-10. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commissions Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the ISE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-ISE-2005-10 and should be submitted by March 24, 2005. IV. Commission's Findings and Order Granting Accelerated Approval of Proposed Rule Change The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange, and, in particular, the requirements of section 6(b)(5) thereunder. 12 The proposed rule change would facilitate the listing and trading of options on certain types of narrow-based securities indexes on the Exchange for the benefit of its members and their customers, specifically those that are calculated using the modified capitalization-weighted methodology and otherwise meet all applicable generic listing standards under ISE Rule 2002(b). Accordingly, the Commission believes that approving this proposed rule change, as amended, would promote a fair, orderly, and competitive options market. 12 15 U.S.C. 78f(b)(5). The Exchange has requested that this proposed rule change be given accelerated effectiveness pursuant to section 19(b)(2) of the Act. 13 The Commission finds good cause for approving this proposed rule change, as amended, prior to the thirtieth day after the date of publication of notice thereof in the **Federal Register** . The Commission believes that accelerating the effectiveness of the proposed rule change, as amended, would facilitate the availability of additional investment choices to investors. In addition, the Commission notes that it has previously approved the modified market capitalization methodology in generic listing standards for other derivative products. Accordingly, the Commission believes that there is good cause, consistent with sections 6(b)(5) and 19(b)(2) of the Act, 14 to approve the proposal, as amended, on an accelerated basis. 13 15 U.S.C. 78s(b)(1). 14 15 U.S.C. 78f(b)(5) and 78s(b)(2). V. Conclusion *It is therefore ordered,* pursuant to section 19(b)(2) of the Act, 15 that the proposed rule change (SR-ISE-2005-10), as amended, is hereby approved on an accelerated basis. 15 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 16 16 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-848 Filed 3-2-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51264; File No. SR-NYSE-2005-07] Self-Regulatory Organizations; Order Granting Approval of Proposed Rule Change by the New York Stock Exchange, Inc. Relating to Proposed Changes to Exchange Rules 440F (“Public Short Sale Transactions Effected on the Exchange”) and 440G (“Transactions in Stocks and Warrants for the Accounts of Members, Allied Members and Member Organizations”) February 25, 2005. On January 11, 2005, the New York Stock Exchange, Inc. (the “NYSE” or the “Exchange”) filed with the Securities and Exchange Commission (the “SEC” or the “Commission”) the proposed rule change pursuant to section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the “Exchange Act”) 2 and Rule 19b-4 thereunder, 3 a proposed rule change relating to the inclusion of certain short-exempt sales on Reports of Short Interest ( *i.e.,* NYSE Forms SS20 and 121). This order approves the proposed rule change. 1 15 U.S.C. 78s(b)(1) 2 15 U.S.C. 78a *et seq.* 3 17 CFR 240.19b-4. The proposed rule change was published for notice and comment in the **Federal Register** on January 26, 2005. 4 The Commission did not receive comments on the foregoing proposed rule change. 4 *See* Securities Exchange Act Release No. 51054 (January 18, 2005), 70 FR 3758. The Commission has carefully reviewed the proposed rule change and finds that the proposed rule change is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to a national securities exchange 5 and, in particular, the requirements of section 6 of the Exchange Act. 6 In particular, the Commission finds that the proposed rule change is consistent with section 6(b)(5) in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to perfect the mechanism of a free and open market and national market system, and in general to protect investors and the public interest; and the prompt and accurate clearance and settlement of securities transactions. 7 5 In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 6 15 U.S.C. 78f. 7 15 U.S.C. 78f(b)(5). The Commission notes that the NYSE proposal amends Exchange Rule 440F, which requires members and member organizations to report round-lot short sale transactions for public customers on Form SS20, and Exchange Rule 440G, which requires members and member organizations to report round-lot short sale transactions for members, allied members or member organizations on Form 121, to include certain short-exempt sale transactions. Currently, short-exempt sales are excluded when computing the total short interest on the forms, under Rules 440F and 440G, respectively. However, the Commission's Pilot Order issued pursuant to Rule 202T of Regulation SHO 8 greatly increased the number of short-exempt sales transactions. Under the terms of the Commission's Pilot Order, sales in certain “designated securities” should be marked “short-exempt.” 9 The Commission finds that including the designated securities subject to the Pilot Order, regardless as to whether they are marked “short-exempt,” is consistent with the requirements of the Exchange Act. 8 17 CFR 242.202T. 9 *See* Securities Exchange Act Release No. 50104 (July 28, 2004), 69 F.R. 48032 (August 6, 2004) (“Pilot Order”), available at *http://www.sec.gov/rules/other/34-50104.htm;* *see also* Securities Exchange Act Release No. 50747 (November 29, 2004), 69 FR 70480 (December 6, 2004), available at *http://www.sec.gov/rules/other/34-50747.htm* (Second Pilot Order). The Pilot Order provided for a one-year pilot program (“Pilot Program”), under which short sale price tests are suspended for short sales in:

(1)Certain “designated securities” identified in Appendix A to the SEC's Pilot Order;

(2)any security included in the Russell 1000 Index effected between 4:15 p.m. EST and the open of the consolidated tape on the following day; and

(3)any security not included in

(1)and

(2)above effected in the period between the close of the consolidated tape ( *i.e.,* after 8 p.m. EST) and the open of the consolidated tape the following day. The Commission's Second Pilot Order delayed the start date of the Pilot Program to May 2, 2005. It is therefore ordered, pursuant to section 19(b)(2) of the Exchange Act, that the proposed rule change (SR-NYSE-2005-07) be, and it hereby is, approved. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 10 10 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-846 Filed 3-2-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51249; File No. SR-NYSE-2005-05] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the New York Stock Exchange, Inc. Relating to Requirements for Listing Stock Index Warrants February 24, 2005. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on January 7, 2005, the New York Stock Exchange, Inc. (“Exchange” or “NYSE”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in items I and II below, which items have been prepared by the Exchange. The NYSE filed the proposed rule change pursuant to section 19(b)(3)(A) of the Act 3 and Rule 19b-4(f)(6) thereunder, 4 which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b-4(f)(6). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to eliminate Exchange Rules 414(l) and 414(n). The Exchange also proposes to amend section 703.17 of the NYSE's Listed Company Manual (“Manual”) to incorporate those provisions. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of the proposed rule change is available on NYSE's Web site ( *http://www.nyse.com* ), at the NYSE's Office of the Secretary, and at the Commission's Public Reference Room. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Exchange Rule 414(l) requires that stock index warrants base settlement value on opening prices when 25 percent or more of the value of the index consists of securities primarily traded in the United States. Exchange Rule 414(n) requires that issuers of stock index warrants to notify the Exchange immediately of any changes in the number of warrants outstanding that the Exchange may prescribe due to the early exercise of the warrants. The Exchange believes it is appropriate that the requirements set forth in Exchange Rules 414(l) and 414(n) be set forth in the Manual rather than in Exchange Rules, as the Exchange Rules are generally applicable only to member organizations while the Manual is generally applicable to listed companies. The Exchange represents that the proposed amendments to Section 703.17 of the Manual incorporate the substantially similar provisions of Exchange Rules 414(l) and (n). 2. Statutory Basis The Exchange believes that the proposal is consistent with the requirements of section 6(b) of the Act, 5 in general, and section 6(b)(5) of the Act, 6 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. 5 15 U.S.C. 78f(b). 6 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not:

(i)Significantly affect the protection of investors or the public interest;

(ii)impose any significant burden on competition; and

(iii)become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to section 19(b)(3)(A) of the Act 7 and Rule 19b-4(f)(6) thereunder. 8 At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 7 15 U.S.C. 78s(b)(3)(A). 8 17 CFR 240.19b-4(f)(6). The NYSE has asked that the Commission waive the 30-day operative delay and the five-day pre-filing notice requirement. The Commission believes that waiver of the five-day pre-filing notice requirement is consistent with the protection of investors and the public interest, since the proposed rule change relocates provisions from the Exchange Rules to the Manual, without substantial change to the rule text. Thus, the Commission waives this pre-filing notice provision. However, waiver of the 30-day operative period is unnecessary because the Exchange currently does not trade stock index warrants. 9 9 Telephone conference between John Carey, Assistant General Counsel, NYSE, and Florence E. Harmon, Senior Special Counsel, Division of Market Regulation, Commission, on February 24, 2005. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-NYSE-2005-05 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-NYSE-2005-05. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NYSE-2005-05 and should be submitted on or before March 24, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 10 10 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-849 Filed 3-2-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51240; File Nos. SR-NASD-2005-022; SR-NYSE-2005-12] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Changes by the National Association of Securities Dealers, Inc. To Provide an Exemption From the Research Analyst Qualification Examination for Certain Associated Persons Who Prepare Technical Research Reports and the New York Stock Exchange, Inc. Relating to an Alternative Qualification Standard for the Research Analyst Qualification Examination Requirement for Technical Analysts February 23, 2005. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on January 27, 2005 the New York Stock Exchange (“NYSE” or the “Exchange”), and on February 4, 2005, the National Association of Securities Dealers, Inc. (“NASD”), filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule changes as described in items I, II, and III below, which items have been prepared by the respective self-regulatory organizations (“SROs”). The SROs have designated the proposed rule changes as constituting a stated policy, practice, or interpretation with respect to the meaning, administration, or enforcement of an existing rule series under paragraph (f)(1) of Rule 19b-4 under the Act, 3 which renders the proposals effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule changes from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 17 CFR 240.19b-4(f)(1). I. Self-Regulatory Organizations' Statements of the Terms of Substance of the Proposed Rule Changes A. NASD NASD is filing with the Securities and Exchange Commission a proposed rule change to amend NASD Rule 1050 to provide for an exemption from the analytical portion of the Research Analyst Qualification Examination (Series 86) for certain applicants who prepare only “technical research reports” and have passed Levels I and II of the Chartered Market Technician (“CMT”) certification examination administered by the Market Technicians Association (“MTA”). Below is the text of the proposed rule change. Proposed new language is italicized; proposed deletions are in brackets. 1050. Registration of Research Analysts

(a)All persons associated with a member who are to function as research analysts shall be registered with NASD. Before registration as a Research Analyst can become effective, an applicant shall:

(1)be registered pursuant to Rule 1032 as a General Securities Representative; and

(2)pass a Qualification Examination for Research Analysts as specified by the Board of Governors. 4 4 Correspondence between SEC staff and NASD staff.

(b)For the purposes of this Rule 1050, “research analyst” shall mean an associated person who is primarily responsible for the preparation of the substance of a research report or whose name appears on a research report.

(c)Upon written request pursuant to the Rule 9600 Series, NASD will grant a waiver from the analytical portion of the Research Analyst Qualification Examination (Series 86) upon verification that the applicant has passed: *(1)* Levels I and II of the Charter Financial Analyst *(“CFA”)* Examination *; or* *(2) if the applicant functions as a research analyst who prepares only technical research reports as defined in paragraph (e), Levels I and II of the Chartered Market Technician (“CMT”) Examination;* and *(3)* has either [(1)] functioned as a research analyst continuously since having passed the Level II *CFA or CMT* examination or [(2)] applied for registration as a research analyst within two years of having passed the Level II *CFA or CMT* examination. *(d)* An applicant who has been granted [such] an exemption *pursuant to paragraph (c)* still must become registered as a General Securities Representative and then complete the regulatory portion of the Research Analyst Qualification Examination (Series 87) before that applicant can be registered as a Research Analyst. *(e) For the purposes of paragraph (c)(2), a “technical research report” shall mean a research report, as that term is defined in Rule 2711(a)(8), that is based solely on stock price movement and trading volume and not on the subject company's financial information, business prospects, contact with subject company's management, or the valuation of a subject company's securities.* B. NYSE The NYSE hereby proposes an interpretation to Rule 344 to establish an alternative qualification standard for the Research Analyst Qualification Examination for Technical Analysts. Below is the text of the proposed rule change. Proposed new language is italicized; proposed deletions are in brackets. Rule 344 Research Analysts and Supervisory Analysts/01 Research Analysts Exemptions Successful completion of Levels I and II of the Charter Financial Analyst (“CFA”) Examination administered by the CFA Institute allows a Research Analyst candidate to request an exemption from Part I (Series 86) of the Research Analyst Qualification Examination. If an exemption is granted for Part I (Series 86), a candidate will be qualified as a Research Analyst after passing Part II (Series 87) [only] *and the prerequisite examination (i.e., Series 7, 17, or 37/38 examinations).* *Successful completion of Levels I and II of the Chartered Market Technician Program (“CMT”) administered by the Market Technician Association (“MTA”) allows a Research Analyst candidate who prepares only technical research reports to request an exemption from Part I (Series 86) of the Research Analyst Qualification Examination. If an exemption is granted for Part I (Series 86), a candidate will be qualified as a Research Analyst only after passing Part II (Series 87) and the prerequisite examination (i.e., Series 7, 17, or 37/38 examinations).* To qualify for a CFA *or CMT* exemption a Research Analyst candidate must have:

(i)completed the CFA [Part] *Level* II *or CMT Level II* within two years of application for registration or

(ii)functioned as a research analyst continuously since having passed the CFA [Part] *Level* II *or CMT Level II.* Applicants that have completed the CFA [Part] *Level* II *or CMT Level II* that do not meet criteria

(i)or

(ii)may where good cause is shown based upon previous related employment experience make a written request to the Exchange for an exemption. *A technical research report is a research report as defined in Rule 472.10(2) that is based solely on stock price movement and trading volume and not on the subject company's financial information, business prospects, contact with the subject company's management, or the valuation of a subject company's securities.* II. Self-Regulatory Organizations' Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Changes In their filings with the Commission, NASD and the NYSE included statements concerning the purpose of and basis for the proposed rule changes. The text of these statements may be examined at the places specified in item IV below. NASD and the NYSE have prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organizations' Statements of the Purpose of, and Statutory Basis for, the Proposed Rule Changes 1. NASD's Purpose NASD Rule 1050 requires an associated person who functions as a research analyst to register as such with NASD and pass a qualification examination. Rule 1050 is intended to ensure that research analysts possess a certain competency level to perform their jobs effectively and in accordance with applicable rules and regulations. In the context of this requirement, Rule 1050 defines “research analyst” as “an associated person who is primarily responsible for the preparation of the substance of a research report or whose name appears on a research report.” The term “research report” in Rule 1050 has the meaning as defined in Rule 2711(a)(8): “a written or electronic communication that includes an analysis of equity securities of individual companies or industries, and that provides information reasonably sufficient upon which to base an investment decision.” Pursuant to Rule 1050, and in conjunction with the NYSE, NASD has implemented the Research Analyst Qualification Examination (Series 86/87). The examination consists of an analysis part (Series 86) and a regulatory part (Series 87). Prior to taking either the Series 86 or 87, a candidate also must have passed the General Securities Registered Representative Examination (Series 7), the Limited Registered Representative (Series 17), or the Canada Module of Series 7 (Series 37 or 38). Persons who were functioning as research analysts on the effective date of March 30, 2004, and submitted a registration application to NASD by June 1, 2004, have until April 4, 2005, to meet the registration requirements. Rule 1050 provides an exemption from the Series 86 examination for an applicant that has passed Levels I and II of the Chartered Financial Analyst (“CFA”) examination and has either

(1)functioned continuously as a research analyst since having passed Level II of the CFA examination or

(2)passed Level II of the CFA examination within two years of application for registration as a research analyst. The Series 86 examination consists of 100 multiple-choice questions that test fundamental analysis and valuation of equity securities. In contrast, technical research is a discipline that eschews fundamental analysis of companies and valuation of their securities and instead focuses on stock price movements and trading volume. For the purposes of Rule 2711, technical research of securities is treated the same as fundamental research because the same conflicts that the rule addresses can exist, and investors similarly benefit from the required disclosures under the rule, including, for example, price charts. However, the content of the Series 86 examination focuses exclusively on fundamental analysis and does not test technical research concepts. *The MTA and CMT.* The MTA was established in 1973 and began the development of the CMT examination program in 1985. The program was developed by conducting job analysis surveys and working with a group of subject matter experts to determine the tasks and knowledge required to perform the job of a technical research analyst. MTA first administered the exam in 1988. Through 2002, MTA relied on outside consultants to revise and update the examination program. According to the MTA, these consultants also contributed to the development of the CFA examination program. In 2002, the MTA retained the Chauncey Group 5 to manage the CMT Examination Program. As part of its review, Chauncey utilized subject matter and testing experts to review the exam and developed one form of each examination for the past three administrations. In addition, the MTA retained Chauncey to conduct a job analysis study, otherwise referred to as a body of knowledge study. Such studies are conducted periodically to ensure that the existing job analysis/body of knowledge reflects current practice. 5 Chauncey recently merged with Thomson Prometric, and is now known as Thomson Prometric. In sum, the MTA has subjected its examination program to standard testing practices that includes job analysis studies and regular updating of the CMT examination in consultation with content experts. These activities conform to the Standards for Educational and Psychological Testing

(1999)6 that were developed jointly by the American Psychological Association, the American Educational Research Association, and the National Council on Measurement in Education. These same standards are followed for the development and maintenance of NASD qualification examinations. 6 The Standards for Educational and Psychological Testing is a technical guide that provides criteria for evaluating tests, testing practices and the effects of test use. NASD has reviewed descriptions of the subject matter that is covered on the CMT examination and compared it to the subject matter that is covered on the Series 86 examination. The results of the review indicate that the subject matter is different. As such, the Series 86 examination does not test for the job functions identified by the MTA as applicable to technical analysts. In addition, staff has analyzed the process in which the MTA has developed its examination and is satisfied that it meets generally accepted test development procedures. NASD believes that investors will be better served by proposing a qualification standard directly applicable to persons preparing technical research reports, which will demonstrate their competency based on the job functions and knowledge needed to perform such functions. The proposed rule change therefore would add an exemption from the Series 86 for certain associated persons who function as a research analyst but prepare only technical research reports. Like the CFA exemption, such analysts would be eligible for an exemption from the Series 86 if they have passed both Levels I and II of the CMT examination and also have functioned continuously as a research analyst since having passed Level II of the CMT examination or passed Level II of the CMT examination within two years of application for registration as a research analyst. Eligible applicants would remain obligated to meet all other qualification requirements, including the Series 7 or an equivalent examination ( *e.g.,* Series 17, 37 or 38 examination) and the Series 87 before being qualified as a research analyst. For the purposes of eligibility for the exemption, the proposed rule change would establish a definition of a “technical research report” as a research report (as that term is defined in Rule 2711(a)(8)) that is based solely on stock price movement and trading volume and not on the subject company's financial information, business prospects, contact with subject company's management, or the valuation of a subject company's securities. NASD believes that the proposed exemption is appropriate for this specific class of research analysts because the Series 86 does not test the functions associated with technical analysis. NASD has reviewed the CMT examination development program and found it to meet generally established psychometric standards. Importantly, the exemption is available only to research analysts who *exclusively* prepare technical research reports. An associated person who prepares any research report or whose name appears on a research report that does not meet this definition of a “technical research report” would be required to pass the Series 86 or qualify for another exemption or waiver. 2. NASD's Statutory Basis NASD believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act, which require, among other things, that NASD rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. NASD believes that that the proposed rule change is consistent with the provisions of the Act noted above in that it will ensure that those functioning as research analysts possess a minimum competency level and knowledge of applicable laws, rules and regulations, thereby enhancing investor protection. 3. NYSE's Purpose Recent amendments to Rule 344 (“Research Analysts and Supervisory Analysts”) require Research Analysts to be registered with, qualified by, and approved by the Exchange. The Exchange is proposing to adopt a new interpretation to Rule 344 to establish an alternative qualification standard for Part I (Series 86) of the Research Analyst Qualification Examination. *Background.* In July 2003, the Commission approved amendments to Exchange Rules: 472 (“Communications with the Public”), 351 (“Reporting Requirements”), 344 (“Research Analysts and Supervisory Analysts”), and 345A (“Continuing Education for Registered Persons”). 7 The amendments included, among others, a new registration category and qualification examination for research analysts. The amendments were the culmination of joint regulatory efforts among the NYSE, NASD and the SEC to address potential conflicts of interest relating to research analysts. 7 *See* Securities Exchange Act Release No. 48252 (July 29, 2003), 68 FR 45875 (August 4, 2003) (SR-NYSE-2002-49) (giving notice of the proposed rule change). During the comment period for this rule proposal, it was noted that with regard to acknowledging, for qualification purposes, research analysts who have passed other professional examinations, the Exchange would study the appropriateness of providing such comity. Accordingly, as discussed in more detail below, Exchange staff, after thorough review, is proposing that research analysts who prepare only technical research reports and who otherwise demonstrate competency to be exempt from Part I of the Research Analyst Qualification Examination. *Research Analyst Qualification Examination.* In February 2004, the SEC published notice of the Study Outline for the Research Analyst Qualification Examination. 8 The Research Analyst Qualification Examination is part of the SROs regulatory effort to safeguard the investing public from potential conflicts of interest. The purpose of requiring a qualification examination was to protect the investing public by helping to ensure that research analysts are competent to perform their jobs and are knowledgeable about the new regulatory requirements affecting them. Given the scope and magnitude of these requirements, the SROs developed an examination with a part designed specifically to address the new SRO Rule requirements. 8 *See* Securities Exchange Act Release No. 34-49253 (February 13, 2004), 69 FR 8257 (February 29, 2004) (SR-NYSE-2003-41). *See* also NYSE Information Memo 04-5, dated February 3, 2004, for the Study Outline for the Examination. The Research Analyst Qualification Examination (Series 86/87) is a five-and-a-half hour examination, consisting of 150 questions. The exam is divided into two parts. Part I, the Series 86, consists of 100 questions, which address fundamental security analysis and valuation of equity securities. Part II, the Series 87, consists of 50 questions, which primarily address pertinent SRO and SEC rules and regulations, including the recent Research Analysts' Conflicts Rules. The requirement to take and pass the Series 86/87 examination applies to all research analysts, as the term is defined in Exchange Rule 344.10. Exchange Rule 344.10 provides that the term “research analyst” includes a member, allied member, or employee who is primarily responsible for the preparation of the substance of a research report and/or whose name appears on such report. Research analysts, as defined in Exchange Rule 344.10, must be registered with, qualified and approved by the Exchange. The registration and qualification requirements became effective March 30, 2004. Candidates who have been functioning as research analysts as of the effective date of March 30, 2004, have been given one year, until April 4, 2005, to meet the qualification requirement. In March 2004, the SEC approved an interpretation to Rule 344 establishing certain prerequisites to and exemptions from the Research Analysts Qualification Examination. 9 The interpretation to Rule 344 requires, among other things, that each candidate pass either the General Securities Registered Representative Examination (Series 7), the United Kingdom (“UK”) Limited Registered Representative (Series 17) Examination or the Canadian Limited Registered Representative (Series 37/38) Examination (prior to taking either Part I or Part II of the examination). Persons qualified to conduct a general public securities business in the UK and Canada can also be qualified for the same in the U.S. by taking the Series 17 or the Series 37/38 respectively in lieu of the Series 7. These examinations are intended to cover subject matter unique to the U.S. securities markets otherwise not covered by the UK/Canada examinations. 9 *See* Securities Exchange Act Release No. 49464 (March 24, 2004), 69 FR 16628 (March 30, 2004) (SR-NYSE-2004-03). *See* also NYSE Information Memo 04-16, dated April 1, 2004. The interpretation to Rule 344 also allows a research analyst candidate that has passed both Level I and Level II of the Chartered Financial Analyst (“CFA”) Examination administered by the CFA Institute, to request an exemption from Part I (Series 86) of the Research Analyst Qualification Examination. The CFA Examination consists of 10 general topic areas which provide a framework for making investment decisions. Each level of the CFA Examination has a different learning focus: Level I focuses on tools and concepts that apply to investment valuation and portfolio management; and Level II focuses on asset valuation and applying the tools and concepts from Level I. Candidates who receive an exemption from the Series 86 must still satisfy the Series 7, 17, or 37/38 prerequisite examination and pass the Series 87 to be registered and qualified as Research Analysts. To qualify for the CFA exemption from the examination requirement a Research Analyst candidate must have:

(i)Completed the CFA Level II within 2 years of application or registration or

(ii)functioned as a research analyst continuously since having passed the CFA Level II. Applicants that have completed the CFA Level II that do not meet either of the above criteria may, upon a showing of good cause based upon previous related employment experience, make a written request to the Exchange for an exemption. *Proposed Exemptive Relief* . Beginning March 2004, the Exchange and NASD held several conference calls/meetings and have exchanged correspondences with the Market Technicians Association, Inc. (“MTA”) Task Force with regard to its efforts to seek exemptive relief from the Series 86 examination for individuals who have passed Levels I and II of the Chartered Market Technician Program (“CMT”) who prepare technical research reports. The CMT Levels I and II are in total six-hour examinations, consisting of a total of 270 multiple-choice questions. CMT Level I tests the working knowledge of the basic tools of technical analysis, including: basic definitions and information; methods of charting; establishing price targets; market trend determination; and bond, commodity, currency, futures, index and option analysis. Level II tests more technical analytical techniques and the ability to apply the principles tested in Level I. As noted above, an interpretation of Rule 344 provides an exemption from the Series 86 examination for individuals who have passed Levels I and II of the CFA examination. The Exchange is proposing a similar exemption for research analysts who only prepare technical research reports and who have passed Levels I and II of the CMT. For purposes of the exemption, a “technical research report” is a research report as defined in Rule 472.10(2) 10 that is based solely on stock price movement and trading volume and not on the subject company's financial information, business prospects, contact with the subject company's management, or the valuation of a subject company's securities. The proposed definition builds on the core definition of “research report” in Rule 472 and incorporates, in relevant part, the substance of the definition (discussed below) of “technical research report” in the Global Research Analyst Settlement. 11 10 Rule 472.10(2) defines a research report as written or electronic communication, which includes an analysis of equity securities of individual companies or industries and provides information reasonably sufficient upon which to base an investment decision. 11 *See* SEC Litigation Release No. 18438 (October 31, 2003). The proposed exemption would be similarly conditioned on passing the Series 7, 17, or 37/38 prerequisite examination and Series 87 examination as well as the time limitations also noted above. Further, if such analysts were to prepare a research report ( *e.g.* , a fundamental equity analysis report) as defined in Exchange Rule 472.10(2), they would be required to pass either the Series 86 examination or have obtained the CFA exemption as well as pass the Series 87 examination. While exempt from the Series 86 examination, these analysts would still be subject to all other Exchange rules governing communications with the public and still be subject to the supervision of their firms. Exchange staff believes that it is appropriate, and consistent with its regulatory objectives, to provide exemptive relief to technical analysts similar to that which has been provided for fundamental analysts. First, the genesis of the Research Analyst Qualification Examination was to help address the conflicts of interest inherent with respect to the interaction between research analysts, investment bankers and subject companies in obtaining and retaining investment banking relationships. The Series 86 exam was developed by NYSE and NASD staffs in conjunction with a committee of fundamental analysts and is intended to test fundamental securities analysts. This is quite clear from the exam's Study Outline. Technical analysis is quite different than fundamental and therefore such analysts should not unnecessarily be subjected to taking an examination, when there is a superior alternative to demonstrate competency. Indeed, securities regulators recognize the distinctions among various types of research disciplines. In this regard, the recently approved amendments to the Global Research Analyst Settlement make this distinction by providing for the following definition: The term “technical research report” means any written (including electronic) communication that is furnished by the firm to investors in the U.S. and includes an analysis of the securities of an issuer or issuers, that is based solely on prices and trading volume and not on the issuer's financial information, business prospects, or contact with issuer management, and that provides information reasonably sufficient upon which to base an investment decision. The Exchange reviewed descriptions of the subject matter that is covered on the CMT examination and compared it to the subject matter that is covered on the Series 86 examination. The results of the review indicate that the subject matter is different, and confirms that the work process and product of a technical analyst is distinctly different from the work of a fundamental analyst. In addition, staff has analyzed the process in which the MTA has developed its examination and is satisfied that it meets generally accepted test development procedures. The Exchange believes that investors will be better served by proposing a qualification standard directly applicable to persons preparing technical research reports, which will demonstrate their competency based on the work functions and knowledge needed to perform such functions. *The MTA and CMT.* The MTA was established in 1973, and began the development of the CMT examination program in 1985, by conducting job analysis surveys and working with a group of subject matter experts to determine the tasks and knowledge required to perform the job of a Technical Research Analyst. In 1988, the original examinations were administered. From 1988 through 2002, the examination continued to be revised and updated by employing outside consultants. According to the MTA, these consultants were also contributors to the CFA examination process, which the SEC approved as exemptions to both Part II of the Supervisory Analyst (Series 16) Examination 12 and Part I (Series 86) of the Research Analyst Qualification Examination. 12 *See* Securities Exchange Act Release No. 41021 (February 4, 1999), 64 FR 7680 (February 16, 1999) (SR-NYSE-98-44). In 2002, the MTA retained the Chauncey Group to manage the CMT Examination Program. As part of its review, Chauncey utilized subject matter and testing experts to review the exam and developed one form of each examination for the past three administrations. In addition, the MTA retained Chauncey to conduct a job analysis study, otherwise referred to as a body of knowledge study. Such studies are conducted periodically to ensure that the existing job analysis body of knowledge is reflective of current practice. In sum, the MTA with its professional consultants have subjected the examination to standard testing practices that the Exchange believes sufficient to allow it to be used to provide an exemption for the Series 86 examination. This is evidenced by the fact that the MTA has been conducting job analysis studies, updating the CMT examinations periodically, and involving content experts in such studies and updates of the examinations. Such activities conform to the Standards for Educational and Psychological Testing (1999), 13 which were developed jointly by the American Psychological Association (APA), the American Educational Research Association (AERA), and the National Council on Measurement in Education (NCME). These same standards are followed for the development and maintenance of NYSE qualification examinations. 13 The Standards for Educational and Psychological Testing is a technical guide that provides criteria for evaluating tests, testing practices and the effects of test use. For purposes of consistency, the Exchange is also amending the text of the interpretation to Rule 344 by inserting the term “Level” in place of “Part” when referencing the CFA examination. 4. NYSE's Statutory Basis The statutory basis for this proposed rule change is section 6(b)(5) 14 and section 6(c)(3)(B) 15 of the Act. Under section 6(b)(5), the rules of the Exchange must be designed to protect investors and the public interest. By requiring a qualification standard directly applicable to persons preparing technical research reports, which will demonstrate their competency based on the work functions and knowledge needed to perform such functions, investors will be better protected. 14 15 U.S.C. 78f(b)(5). 15 15 U.S.C. 78f(c)(3)(B). Under section 6(c)(3)(B) it is the Exchange's responsibility to prescribe standards of training, experience and competence for persons associated with Exchange members and member organizations. In addition, under section 6(c)(3)(B), the Exchange may bar a natural person from becoming a member or person associated with a member, if such natural person does not meet such standards of training, experience and competence as prescribed by the rules of the Exchange. Pursuant to this statutory obligation, the Exchange has:

(1)Developed an examination that will be administered to establish that Research Analysts have attained specified levels of competence and knowledge; and

(2)provided for exemptions from Part I of the examination were candidates have their competency based on their work functions and the knowledge they need to perform such functions ( *e.g.* , passing Levels I and II of the CFA or CMT). B. Self-Regulatory Organizations' Statement on Burden on Competition NASD and the NYSE do not believe that the proposed rule changes will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others NASD and the NYSE has neither solicited nor received written comments on the proposed rule changes. III. Date of Effectiveness of the Proposed Rule Changes and Timing for Commission Action The proposed rule changes have been filed by NASD and the NYSE as stated policies, practices, or interpretations with respect to the meaning, administration, or enforcement of an existing rule under Rule 19b-4(f)(1) under the Act. 16 Consequently, they have become effective pursuant to section 19(b)(3)(A) of the Act and Rule 19b-4(f)(1) thereunder. 16 17 CFR 240.19b-4(f)(1). At any time within 60 days of the filing of the proposed rule changes, the Commission may summarily abrogate these proposals if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule changes are consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-NASD-2005-022 and/or SR-NYSE-2005-12 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Numbers SR-NASD-2005-022 and/or SR-NYSE-2005-12. These file numbers should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of the NASD and the NYSE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Numbers SR-NASD-2005-022 and/or SR-NYSE-2005-12 and should be submitted on or before March 24, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 17 17 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-850 Filed 3-2-05; 8:45 am] BILLING CODE 8010-01-P SOCIAL SECURITY ADMINISTRATION Privacy Act of 1974, as Amended Alteration to Existing System of Records and New Routine Use Disclosure AGENCY: Social Security Administration (SSA). ACTION: Altered systems of records, including proposed new routine use. SUMMARY: In accordance with the Privacy Act (5 U.S.C. 552a(e)(4) and (11)), we are issuing public notice of our intent to alter two existing systems of records, the Recovery of Overpayments, Accounting and Reporting, 60-0094 and the Supplemental Security Income Record and Special Veterans Benefits, 60-0103. The proposed alterations will result in the following changes to these two systems of records:

(1)Expansion of the categories of individuals covered by the systems to include former beneficiaries and representative payees of Social Security payments and former recipients of Supplemental Security Income

(SSI)payments who received an overpayment and owe a delinquent debt to the SSA;

(2)Expansion of the purposes for which SSA uses information maintained in the systems; and

(3)A proposed new routine use disclosure in each system providing for the release of information to employers to assist SSA in collecting delinquent debts owed to the Agency from the disposable pay of the debtors described above. All of the proposed alterations are discussed in the SUPPLEMENTARY INFORMATION section below. We invite public comment on this proposal. DATES: We filed a report of the proposed new routine use disclosures with the Chairman of the Senate Committee on Homeland Security and Governmental Affairs, the Chairman of the House Committee on Government Reform, and the Director, Office of Information and Regulatory Affairs, Office of Management and Budget

(OMB)on February 22, 2005. The proposed altered systems of records, including the proposed new routine use respective to those systems, will become effective on April 3, 2005, unless we receive comments warranting them not to become effective. ADDRESSES: Interested individuals may comment on this publication by writing to the Executive Director, Office of Public Disclosure, Office of the General Counsel, Social Security Administration, Room 3-A-6 Operations Building, 6401 Security Boulevard, Baltimore, Maryland 21235-6401. All comments received will be available for public inspection at the above address. FOR FURTHER INFORMATION: Contact Joan Peddicord, Social Insurance Specialist, Strategic Issues Team, Office of Public Disclosure, Office of the General Counsel, Social Security Administration, in Room 3-A-6 Operations Building, 6401 Security Boulevard, Baltimore, Maryland 21235-6401, telephone at

(410)966-6491, e-mail: *joan.peddicord@ssa.gov* . SUPPLEMENTARY INFORMATION: I. Background and Purpose of the Proposed Alterations to the Recovery of Overpayments, Accounting and Reporting System and the Supplemental Security Income Record and Special Veterans Benefits System A. General Background Administrative wage garnishment

(AWG)is authorized by the Debt Collection Improvement Act

(DCIA)of 1996. Section 31001(o)(1) of Public Law 104-134

(1996)amended Chapter 37, subchapter II of Title 31, United States Code by adding section 3720D to permit Federal agencies to use AWG to recover overdue debts. SSA will use AWG to collect program overpayments arising under the Title II and Title XVI programs owed by former beneficiaries and representative payees of Social Security payments and former recipients of SSI payments. SSA plans to use AWG to collect delinquent debts owed to the Agency from the disposable pay of the debtor by sending a non-judicial order to his or her employer. SSA is developing AWG as an automated system. Using automated routines, SSA will identify Title II and Title XVI debtors who meet the criteria for AWG. SSA will send an automated notice to the debtors informing them about the planned action, providing them with opportunity to repay the debt and avoid AWG, and also providing them with their due process rights. If the debtor does not respond to the notice, SSA will launch AWG no sooner than 60 days after the date of the notice. SSA will launch AWG by sending the non-judicial garnishment order to the last known employer of the debtor. The garnishment order directs the employer to withhold 15 percent of the debtor's disposable wages consistent with the DCIA and send them to SSA each payday as payment toward the delinquent debt. AWG will generally continue until the debt is repaid or disposed of in some other way. B. Discussion of Proposed Alterations to the Recovery of Overpayments, Accounting and Reporting System and the Supplemental Security Income Record and Special Veterans Benefits System 1. Expansion of the Categories of Individuals Covered by the Recovery of Overpayments, Accounting and Reporting System and the Supplemental Security Income Record and Special Veterans Benefits System We are adding one new category of individuals to the Recovery of Overpayments, Accounting and Reporting system and the Supplemental Security Income Record and Special Veterans Benefits system: Former beneficiaries and representative payees of Social Security payments and former recipients of SSI payments who received an overpayment and have a delinquent debt to the SSA. See the “Categories of individuals covered by the system” section in the Recovery of Overpayments, Accounting and Reporting system and the Supplemental Security Income Record and Special Veterans Benefits system notices below for the inclusion of this additional category of individuals and a full description of the information maintained therein. 2. Additional Use of Information in the Recovery of Overpayments, Accounting and Reporting System and the Supplemental Security Income Record and Special Veterans Benefits System We are expanding the purposes for which we use the information maintained in the Recovery of Overpayments, Accounting and Reporting system and the Supplemental Security Income Record and Special Veterans Benefits system to include use of the information by SSA's central office personnel involved in identifying individuals who meet the criteria for AWG and who will effectuate the operational processes necessary to collect the overpayments. II. Proposed New Routine Use Disclosure of Data Maintained in the Recovery of Overpayments, Accounting and Reporting System and the Supplemental Security Income Record and Special Veterans Benefits System A. Establishment of New Routine Use We are proposing to establish a new routine use which allows disclosure of information maintained in the Recovery of Overpayments, Accounting and Reporting system and the Supplemental Security Income Record and Special Veterans Benefits system to employers to assist SSA in collecting delinquent debts owed to the Agency from the disposable pay of the debtor. As described above, these debtors are former beneficiaries and representative payees of Social Security payments and former recipients of SSI payments who received an overpayment and owe a delinquent debt to the SSA. The new routine use in the Recovery of Overpayments, Accounting and Reporting system, numbered 8, provides for disclosure of information and is proposed as follows: “To employers to assist SSA in the collection of debts owed by former beneficiaries and representative payees of Social Security payments who received an overpayment and owe a delinquent debt to SSA. Disclosure under this routine use is authorized under the Debt Collection Improvement Act of 1996 (Pub. L. 104-134) and implemented through administrative wage garnishment provisions of this Act (31 U.S.C. 3720D).” The new routine use in the Supplemental Security Income Record and Special Veterans Benefits system, numbered 37, provides for disclosure of information and is proposed as follows: “To employers to assist SSA in the collection of debts owed by former recipients of Supplemental Security Income

(SSI)payments who received an overpayment and owe a delinquent debt to SSA. Disclosure under this routine use is authorized under the Debt Collection Improvement Act of 1996 (Pub. L. 104-134) and implemented through administrative wage garnishment provisions of this Act (31 U.S.C. 3720D).” B. Compatibility of Proposed New Routine Use Disclosure The Privacy Act (5 U.S.C. 552a(a)(7) and (b)(3)) and SSA's disclosure regulation (20 CFR part 401) permit us to disclose information under a published routine use for a purpose that is compatible with the purpose for which we collected the information. Section 401.150(c) of the regulations permits us to disclose information under a routine use where necessary to carry out SSA programs or assist other agencies in administering similar programs. The proposed new routine use in each of these two systems will assist SSA in administering administrative wage garnishment as authorized by the DCIA of 1996. Thus, the proposed new routine use disclosure is appropriate and meets the relevant statutory and regulatory criteria. III. Effect of the Proposed Alterations and New Routine Use Disclosure on the Rights of Individuals The proposed alterations and new routine use disclosure to the Recovery of Overpayments, Accounting and Reporting System and the Supplemental Security Income Record and Special Veterans Benefits system pertain to SSA's responsibilities in collecting, maintaining, and disclosing information about individuals who are former Social Security beneficiaries and representative payees and former SSI recipients who owe a delinquent debt to the SSA which the Agency may collect under the AWG as authorized by the DCIA of 1996. We will adhere to all applicable statutory requirements, including those under the Social Security Act and the Privacy Act, in carrying out our responsibilities. Therefore, we do not anticipate that the proposed alterations and new routine use disclosure will have an unwarranted adverse effect on the right of individuals. IV. Minor Housekeeping Changes to the Notice of the Recovery of Overpayments, Accounting and Reporting System and the Supplemental Security Income Record and Special Veterans Benefits System Authority for Maintenance of the System—We have revised this section of the notice of the Recovery of Overpayments, Accounting and Reporting system and the Supplemental Security Income Record and Special Veterans Benefits system by adding reference to the DCIA of 1996, which authorizes collection of Federal agency debt through administrative wage garnishment. Dated: February 22, 2005. Jo Anne B. Barnhart, Commissioner. System Number: 60-0094. System name: Recovery of Overpayments, Accounting and Reporting, Social Security Administration, Office of Retirement and Survivors Insurance Systems. Security classification: None. System location: Social Security Administration, Office of Telecommunications and Systems Operations, 6401 Security Boulevard, Baltimore, MD 21235. PSCs (See Appendix A for PSC address information). Social Security Administration, Office of Disability Operations, 1500 Woodlawn Drive, Baltimore, MD 21241. Lists of overpaid individuals, which are produced by this computer system, are maintained at each of SSA's field offices. (See Appendix F to this publication for address and telephone information.) Categories of individuals covered by the system: Social Security beneficiaries and former beneficiaries who may have received an overpayment of benefits; persons holding conserved (accumulated) funds received on behalf of a Social Security beneficiary; and persons who received Social Security payments on behalf of a beneficiary and were overpaid or who are suspected to have misused those payments. Categories of records in the system: Identifying characteristics of each overpayment or instance of misused or conserved funds ( *e.g.* , name, SSN and address of the individual(s) involved, recovery efforts made and the date of each action, and planned future actions). Authority for maintenance of the system: Section 204(a) of the Social Security Act (42 U.S.C. 404(a)) and the Debt Collection Improvement Act

(DCIA)of 1996 (Pub. L. 104-134) and implementing provisions of the DCIA for administrative wage garnishment (31 U.S.C. 3720D). Purpose(s): The users of this system are employees of the Social Security field offices, as well as selected personnel of SSA's Program Service Centers

(PSC)and the Office of Disability Operations (ODO). The data are used to maintain control of overpayments and misused or conserved funds from the time of discovery to the final resolution and for the proper adjustments of payment and refund amounts. Data adjustments produce accounting and statistical reports at specified intervals. The users of this system also include central office personnel involved in identifying individuals who meet the criteria for administrative wage garnishment and who will effectuate the operational processes necessary to collect the overpayments. Routine uses of records maintained in the system, including categories of users and the purposes of such uses: Disclosure may be made for routine uses as indicated below. However, disclosure of any information constituting tax “returns or return information” within the scope of the Internal Revenue Code will not be made unless disclosure is authorized by that statute.

(1)To a congressional office in response to an inquiry from that office made at the request of the subject of a record.

(2)To the Office of the President for the purpose of responding to an individual pursuant to an inquiry received from that individual or a third party on his/her behalf.

(3)To third party contacts such as private collection agencies and credit reporting agencies under contract with SSA and State motor vehicle agencies for the purpose of their assisting SSA in recovering overpayments.

(4)Information may be disclosed to contractors and other Federal agencies, as necessary, for the purpose of assisting SSA in the efficient administration of its programs. We contemplate disclosing information under this routine use only in situations in which SSA may enter a contractual or similar agreement with a third party to assist in accomplishing an agency function relating to this system of records.

(5)Non-tax return information which is not restricted from disclosure by Federal law may be disclosed to the General Services Administration

(GSA)and the National Archives and Records Administration

(NARA)for the purpose of conducting records management studies with respect to their duties and responsibilities under 44 U.S.C. 2904 and 2906, as amended by the NARA Act of 1984.

(6)To the Department of Justice (DOJ), a court or other tribunal, or another party before such tribunal when:

(a)SSA, or any component thereof; or

(b)any SSA employee in his/her official capacity; or

(c)any SSA employee in his/her individual capacity where DOJ (or SSA where it is authorized to do so) has agreed to represent the employee; or

(d)the United States or any agency thereof where SSA determines that the litigation is likely to affect the operations of SSA or any of its components, is a party to litigation or has an interest in such litigation, and SSA determines that the use of such records by DOJ, the court or other tribunal is relevant and necessary to the litigation, provided, however, that in each case, SSA determines that such disclosure is compatible with the purpose for which the records were collected. Wage and other information which are subject to the disclosure provisions of the IRC (26 U.S.C. 6103) will not be disclosed under this routine use unless disclosure is expressly permitted by the IRC.

(7)To student volunteers and other workers, who technically do not have the status of Federal employees, when they are performing work for SSA as authorized by law, and they need access to personally identifiable information in SSA records in order to perform their assigned Agency functions.

(8)To employers to assist SSA in the collection of debts owed by former beneficiaries and representative payees of Social Security payments who received an overpayment and owe a delinquent debt to the SSA. Disclosure under this routine use is authorized under the Debt Collection Improvement Act of 1996 (Pub. L. 104-134) and implemented through administrative wage garnishment provisions of this Act (31 U.S.C. 3720 D). Disclosure to Consumer Reporting Agencies: Disclosure pursuant to 5 U.S.C. 5520(b)(12) may be made to consumer reporting agencies as defined in the Fair Credit Reporting Act (15 U.S.C. 1681a(f)) or the Federal Claims Collection Act of 1966 as amended (31 U.S.C. 3701, *et seq.* ) or the Social Security Domestic Employment Reform Act of 1994, Pub. L. 103-387, 42 U.S.C. 404(f). The purpose of this disclosure is to aid in the collection of outstanding debts owed to the Federal government, typically, to provide an incentive for debtors to repay delinquent Federal government debts by making these part of their credit records. Disclosure of records is limited to the individual's name, address, SSN, and other information necessary to establish the individual's identity; the amount, status, and history of the claim and the Agency or program under which the claim arose. The disclosure will be made only after the procedural requirements of 31 U.S.C. 3711(e) have been followed. Policies and practices for storing, retrieving, accessing, retaining and disposing of records in the system: Storage: Records are maintained in magnetic cartridges, microfiche and paper form. Retrievability: Records are retrieved by SSN. Safeguards: System security for automated records has been established in accordance with the Systems Security Handbook. This includes maintaining automated records in a secured building, the SSA National Computer Center, and limiting access to the building to employees who have a need to enter in the performance of their official duties. Paper and other non-ADP records are protected through standard security measures ( *e.g.* , maintenance of the records in buildings which are manned by armed guards). (See Appendix G for additional information relating to safeguards SSA employs to protect personal information.) Retention and disposal: Magnetic cartridges are updated daily and retained for 75 days. The magnetic cartridges produced in the last operation of the month are retained in security storage for a period of 75 days, after which the tapes are erased and returned to stock. The microfiche records are updated monthly, retained for 3 years after the month they are produced, and then destroyed by application of heat. System manager(s) and address: Director, Office of Retirement and Survivors Insurance Systems, Division of Title II Payments and Accounting, Social Security Administration, 6401 Security Boulevard, Baltimore, Maryland 21235. Notification procedure: An individual can determine if this system contains a record about him/her by contacting the appropriate processing office ( *e.g.* , PSC, ODO or the most convenient Social Security field office). (See Appendices A and F to this publication for address information), by writing to the systems manager(s) at the above address and providing his/her name, SSN or other information that may be in the system of records that will identify him/her. An individual requesting notification of records in person should provide the same information, as well as provide an identity document, preferably with a photograph, such as a driver's license or some other means of identification, such as a voter registration card, credit card, etc. If an individual does not have any identification documents sufficient to establish his/her identity, the individual must certify in writing that he/she is the person claimed to be and that he/she understands that the knowing and willful request for, or acquisition of, a record pertaining to another individual under false pretenses is a criminal offense. If notification is requested by telephone, an individual must verify his/her identity by providing identifying information that parallels the record to which notification is being requested. If it is determined that the identifying information provided by telephone is insufficient, the individual will be required to submit a request in writing or in person. If an individual is requesting information by telephone on behalf of another individual, the subject individual must be connected with SSA and the requesting individual in the same phone call. SSA will establish the subject individual's identity (his/her name, SSN, address, date of birth and place of birth along with one other piece of information such as mother's maiden name) and ask for his/her consent in providing information to the requesting individual. If a request for notification is submitted by mail, an individual must include a notarized statement to SSA to verify his/her identity or must certify in the request that he/she is the person claimed to be and that he/she understands that the knowing and willful request for, or acquisition of, a record pertaining to another individual under false pretenses is a criminal offense. These procedures are in accordance with SSA Regulations (20 CFR 401.40). Record access procedures: Same as notification procedures. Also, requesters should reasonably specify the record contents they are seeking. These procedures are in accordance with SSA Regulations (20 CFR 401.40(c)). Contesting record procedures: Same as notification procedures. Requesters should also reasonably identify the record, specify the information they are contesting and state the corrective action sought and the reasons for the correction with supporting justification showing how the record is untimely, incomplete, inaccurate or irrelevant. These procedures are in accordance with SSA Regulations (20 CFR 401.65(a)). Record source categories: The information for the computer files is received directly from beneficiaries, from Social Security field offices, and as the result of earnings enforcement operations. The paper listings are updated as a result of the computer operations. Systems exempted from certain provisions of the Privacy Act: None. System number: 60-0103. System name: Supplemental Security Income Record and Special Veterans Benefits, Social Security Administration, Office of Systems, Office of Disability and Supplemental Security Income Systems (ODSSIS). Security classification: None. System location: Social Security Administration, Office of Telecommunications and Systems Operations, 6401 Security Boulevard, Baltimore, MD 21235. Records also may be located in the Social Security Administration

(SSA)Regional and field offices (individuals should consult their local telephone directories for address information). Categories of individuals covered by the system: This file contains a record for each individual who has applied for Supplemental Security Income

(SSI)payments, including individuals who have requested an advance payment; SSI recipients and former SSI recipients who have been overpaid; and ineligible persons associated with an SSI recipient. This file also covers those individuals who have applied for and who are entitled to the Special Veterans Benefits

(SVB)under Title VIII of the Social Security Act. (This file does not cover applicants who do not have a Social Security number (SSN).) Categories of records in the system: This file contains data regarding SSI eligibility; citizenship; residence; Medicaid eligibility; eligibility for other benefits; alcoholism or drug addiction data, if applicable (disclosure of this information may be restricted by 21 U.S.C. 1175 and 42 U.S.C. 290dd-3 and ee-3); income data; resources; payment amounts, including the date and amount of advance payments; overpayment amounts, including identifying characteristics of each overpayment ( *e.g.* , name, SSN, address of the individual(s) involved, recovery efforts made and the date of each action and planned future actions); and date and amount of advance payments; living arrangements; case folder location data; appellate decisions, if applicable; SSN used to identify a particular individual, if applicable; information about representative payees, if applicable; and a history of changes to any of the persons who have applied for SSI payments. For eligible individuals, the file contains basic identifying information, income and resources (if any) and, in conversion cases, the State welfare number. This file also contains information about applicants for SVB. The information maintained in this system of records is collected from the applicants for Title VIII SVB, and other systems of records maintained by SSA. The information maintained includes a data element indicating this is a Title VIII SVB claim. It will also include: identifying information such as the applicant's name, Social Security number

(SSN)and date of birth (DOB); telephone number (if any); foreign and domestic addresses; the applicant's sex; income data, payment amounts (including overpayment amounts); and other information provided by the applicant relative to his or her entitlement for SVB. If the beneficiary has a representative payee, this system of records includes data about the representative payee such as the payee's SSN; employer identification number, if applicable; and mailing address. Authority for maintenance of the system: Sections 1602, 1611, 1612, 1613, 1614, 1615, 1616, 1631, 1633, 1634 of title XVI and title VIII of the Social Security Act (42 U.S.C. 1382, 1382a, 1382b, 1382c, 1382d, 1382e, 1383, 1383b, 1383c and the Debt Collection Improvement Act of 1996 (Pub. L. 104-134) and implementing provisions of this Act for administrative wage garnishment (31 U.S.C. 3720D). Purpose(s): SSI records begin in Social Security field offices where an individual or couple files an application for SSI payments. SVB records begin in Social Security field offices and Veterans Affairs Regional Offices

(VARO)where an individual files an application for SVB payments. The SSI and SVB applications contain data which may be used to prove the identity of the applicant, to determine his/her eligibility for SSI or SVB payments and, in cases where eligibility is determined, to compute the amount of the payment. Information from the application, in addition to data used internally to control and process SSI and SVB cases, is used to create the Supplemental Security Income Record (SSR). The SSR also is used as a means of providing a historical record of all activity on a particular individual's or couple's record. Data from these records will also be used to identify the individuals who meet the criteria for administrative wage garnishment and to effectuate the operational processes necessary to collect the overpayments. In addition, statistical data are derived from the SSR for actuarial and management information purposes. Routine uses of records maintained in the system, including categories of users and the purposes of such uses: Disclosure may be made for routine uses as indicated below. However, disclosure of any information defined as tax “returns or return information” under 26 U.S.C. 6103 of the Internal Revenue Code

(IRC)will not be made unless authorized by a statute, the Internal Revenue Service (IRS), or IRS regulations. 1. To the Department of the Treasury to prepare SSI, Energy Assistance, and SVB checks to be sent to claimants or beneficiaries. 2. To the States to establish the minimum income level for computation of State supplements. 3. To the following Federal and State agencies to prepare information for verification of benefit eligibility under section 1631(e) of the Social Security Act: Bureau of Indian Affairs; Office of Personnel Management; Department of Agriculture; Department of Labor; U.S. Citizenship and Immigration Services; Internal Revenue Service; Railroad Retirement Board; State Pension Funds; State Welfare Offices; State Worker's Compensation; Department of Defense; United States Coast Guard; and Department of Veterans Affairs. 4. To a congressional office in response to an inquiry from that office made at the request of the subject of a record. 5. To the appropriate State agencies (or other agencies providing services to disabled children) to identify Title XVI eligibles under the age of 16 for the consideration of rehabilitation services in accordance with section 1615 of the Act, 42 U.S.C. 1382d. 6. To contractors under contract to SSA or under contract to another agency with funds provided by SSA for the performance of research and statistical activities directly relating to this system of records. 7. To State audit agencies for auditing State supplementation payments and Medicaid eligibility consideration. 8. To State agencies to effect and report the fact of Medicaid eligibility of Title XVI recipients in the jurisdiction of those States which have elected Federal determinations of Medicaid eligibility of Title XVI eligibles and to assist the States in administering the Medicaid program. 9. To State agencies to identify Title XVI eligibles in the jurisdiction of those States which have not elected Federal determinations of Medicaid eligibility in order to assist those States in establishing and maintaining Medicaid rolls and in administering the Medicaid program. 10. To State agencies to enable those agencies which have elected Federal administration of their supplementation programs to monitor changes in applicant/recipient income, special needs, and circumstances. 11. To State agencies to enable those agencies which have elected to administer their own supplementation programs to identify SSI eligibles in order to determine the amount of their monthly supplementary payments. 12. To State agencies to enable them to assist in the effective and efficient administration of the SSI program. 13. To State agencies to enable those which have an agreement with SSA to carry out their functions with respect to Interim Assistance Reimbursement pursuant to section 1631(g) of the Social Security Act. 14. To State agencies to enable them to locate potentially eligible individuals and to make eligibility determinations for extensions of social services under the provisions of Title XX of the Social Security Act. 15. To State agencies to assist them in determining initial and continuing eligibility in their income maintenance programs and for investigation and prosecution of conduct subject to criminal sanctions under these programs. 16. To the United States Postal Service for investigating the alleged theft, forgery or unlawful negotiation of SSI and SVB checks. 17. To the Department of the Treasury for investigating the alleged theft, forgery or unlawful negotiation of SSI and SVB checks. 18. To the Department of Education for determining the eligibility of applicants for Basic Educational Opportunity Grants. 19. To Federal, State or local agencies (or agents on their behalf) for administering cash or non-cash income maintenance or health maintenance programs (including programs under the Social Security Act). Such disclosures include, but are not limited to, release of information to:

(a)The Department of Veterans Affairs

(DVA)upon request for determining eligibility for, or amount of, DVA benefits or verifying other information with respect thereto in accordance with 38 U.S.C. 5106;

(b)the RRB for administering the Railroad Unemployment Insurance Act;

(c)State agencies to determine eligibility for Medicaid;

(d)State agencies to locate potentially eligible individuals and to make determinations of eligibility for the food stamp program;

(e)State agencies to administer energy assistance to low income groups under programs for which the States are responsible; and

(f)Department of State and its agents to assist SSA in administering the Social Security Act in foreign countries, the American Institute on Taiwan and its agents to assist in administering the Social Security Act in Taiwan, the VA, Philippines Regional Office and its agents to assist in administering the Social Security Act in the Philippines, and the Department of Interior and its agents to assist in administering the Social Security Act in the Northern Mariana Islands. 20. To IRS, Department of the Treasury, as necessary, for the purpose of auditing SSA's compliance with safeguard provisions of the Internal Revenue Code

(IRC)of 1986, as amended. 21. To the Office of the President for the purpose of responding to an individual pursuant to an inquiry received from that individual or a third party on his/her behalf. 22. Upon request, information on the identity and location of aliens may be disclosed to the DOJ (Criminal Division, Office of Special Investigations) for the purpose of detecting, investigating and, where necessary, taking legal action against suspected Nazi war criminals in the United States. 23. To third party contacts such as private collection agencies and credit reporting agencies under contract with SSA and State motor vehicle agencies for the purpose of their assisting SSA in recovering overpayments. 24. To contractors and other Federal agencies, as necessary, for the purpose of assisting SSA in the efficient administration of its programs. We contemplate disclosing information under this routine use only in situations in which SSA may enter a contractual or similar agreement with a third party to assist in accomplishing an Agency function relating to this system of records. 25. Non-tax return information which is not restricted from disclosure by Federal law may be disclosed to the General Services Administration

(GSA)and the National Archives and Records Administration

(NARA)under 44 U.S.C. 2904 and 2906, as amended by the NARA Act of 1984, for the use of those agencies in conducting records management studies. 26. To the Department of Justice (DOJ), a court or other tribunal, or another party before such tribunal when:

(a)SSA, or any component thereof, or

(b)any SSA employee in his/her official capacity; or

(c)any SSA employee in his/her individual capacity where DOJ (or SSA where it is authorized to do so) has agreed to represent the employee; or

(d)the United States or any agency thereof where SSA determines that the litigation is likely to affect the operations of SSA or any of its components, is a party to litigation or has an interest in such litigation, and SSA determines that the use of such records by DOJ, a court or other tribunal, or another party before such tribunal is relevant and necessary to the litigation, provided, however, that in each case, SSA determines that such disclosure is compatible with the purpose for which the records were collected. Disclosure of any information defined as tax “returns or return information” under 26 U.S.C. 6103 of the Internal Revenue Code

(IRC)will not be made unless authorized by a statute, the Internal Revenue Service (IRS), or IRS regulations. 27. To representative payees, when the information pertains to individuals for whom they serve as representative payees, for the purpose of assisting SSA in administering its representative payment responsibilities under the Act and assisting the representative payees in performing their duties as payees, including receiving and accounting for benefits for individuals for whom they serve as payees. 28. To third party contacts ( *e.g.* , employers and private pension plans) in situations where the party to be contacted has, or is expected to have, information relating to the individual's capability to manage his/her affairs or his/her eligibility for, or entitlement to, benefits under the Social Security program when:

(a)The individual is unable to provide information being sought. An individual is considered to be unable to provide certain types of information when:

(i)He/she is incapable or of questionable mental capability;

(ii)he/she cannot read or write;

(iii)he/she cannot afford the cost of obtaining the information;

(iv)he/she has a hearing impairment, and is contacting SSA by telephone through a telecommunications relay system operator;

(v)a language barrier exists; or

(vi)the custodian of the information will not, as a matter of policy, provide it to the individual; or

(b)The data are needed to establish the validity of evidence or to verify the accuracy of information presented by the individual, and it concerns one or more of the following:

(i)His/her eligibility for benefits under the Social Security program;

(ii)The amount of his/her benefit payment; or

(iii)Any case in which the evidence is being reviewed as a result of suspected fraud, concern for program integrity, quality appraisal, or evaluation and measurement activities. 29. To the Rehabilitation Services Administration

(RSA)for use in its program studies of, and development of enhancements for, State vocational rehabilitation programs. These are programs to which applicants or beneficiaries under Titles II and or XVI of the Social Security Act may be referred. Data released to RSA will not include any personally identifying information (such as names or SSNs). 30. Addresses of beneficiaries who are obligated on loans held by the Secretary of Education or a loan made in accordance with 20 U.S.C. 1071, *et seq.* (the Robert T. Stafford Student Loan Program) may be disclosed to the Department of Education as authorized by section 489A of the Higher Education Act of 1965. 31. To student volunteers and other workers, who technically do not have the status of Federal employees, when they are performing work for SSA as authorized by law, and they need access to personally identifiable information in SSA records in order to perform their assigned Agency functions. 32. To Federal, State, and local law enforcement agencies and private security contractors, as appropriate, if information is necessary:

(a)To enable them to protect the safety of SSA employees and customers, the security of the SSA workplace and the operation of SSA facilities, or

(b)To assist investigations or prosecutions with respect to activities that affect such safety and security or activities that disrupt the operation of SSA facilities. 33. Corrections to information that resulted in erroneous inclusion of individuals in the Death Master File

(DMF)may be disclosed to recipients of erroneous DMF information. 34. Information as to whether an individual is alive or deceased may be disclosed pursuant to section 1106(d) of the Social Security Act (42 U.S.C. 1306(d)), upon request, for purposes of an epidemiological or similar research project, provided that:

(a)SSA determines in consultation with the Department of Health and Human Services, that the research may reasonably be expected to contribute to a national health interest; and

(b)The requester agrees to reimburse SSA for the costs of providing the information; and

(c)The requester agrees to comply with any safeguards and limitations specified by SSA regarding re-release or re-disclosure of the information. 35. Disclosure may be made to a Federal, State, or congressional support agency ( *e.g.* , Congressional Budget Office and the Congressional Research Staff in the Library of Congress) for research, evaluation, or statistical studies. Such disclosures include, but are not limited to, release of information in assessing the extent to which one can predict eligibility for Supplemental Security Income

(SSI)payments or Social Security disability insurance

(SSDI)benefits; examining the distribution of Social Security benefits by economic and demographic groups and how these differences might be affected by possible changes in policy; analyzing the interaction of economic and non-economic variables affecting entry and exit events and duration in the Title II Old Age, Survivors, and Disability Insurance and the Title XVI SSI disability programs; and analyzing retirement decisions focusing on the role of Social Security benefit amounts, automatic benefit recomputation, the delayed retirement credit, and the retirement test, if SSA: a. Determines that the routine use does not violate legal limitations under which the record was provided, collected, or obtained; b. Determines that the purpose for which the proposed use is to be made:

(i)Cannot reasonably be accomplished unless the record is provided in a form that identifies individuals;

(ii)Is of sufficient importance to warrant the effect on, or risk to, the privacy of the individual which such limited additional exposure of the record might bring;

(iii)There is reasonable probability that the objective of the use would be accomplished;

(iv)Is of importance to the Social Security program or the Social Security beneficiaries or is for an epidemiological research project that relates to the Social Security program or beneficiaries; c. Requires the recipient of information to:

(i)Establish appropriate administrative, technical, and physical safeguards to prevent unauthorized use or disclosure of the record and agree to on-site inspection by SSA's personnel, its agents, or by independent agents of the recipient agency of those safeguards;

(ii)Remove or destroy the information that enables the individual to be identified at the earliest time at which removal or destruction can be accomplished consistent with the purpose of the project, unless the recipient receives written authorization from SSA that it is justified, based on research objectives, for retaining such information;

(iii)Make no further use of the records except:

(a)Under emergency circumstances affecting the health and safety of any individual following written authorization from SSA;

(b)For disclosure to an identified person approved by SSA for the purpose of auditing the research project;

(iv)Keep the data as a system of statistical records. A statistical record is one which is maintained only for statistical and research purposes and which is not used to make any determination about an individual; d. Secures a written statement by the recipient of the information attesting to the recipient's understanding of, and willingness to abide by, these provisions. 36. To the social security agency of a foreign country, for the purpose of verifying Social Security numbers, to carry out the purposes of an international social security agreement entered into between the United States and the other country, pursuant to section 233 of the Social Security Act (42 U.S.C. 433). 37. To employers to assist SSA in the collection of debts owed by former recipients of SSI payments who received an overpayment and owe a delinquent debt to the SSA. Disclosure under this routine use is authorized under the Debt Collection Improvement Act of 1996 (Pub. L. 104-134) and implemented through administrative wage garnishment provisions of this Act (31 U.S.C. 3720D). Disclosure to Consumer Reporting Agencies: Disclosure pursuant to 5 U.S.C. 552a(b)(12) may be made to consumer reporting agencies as defined in the Fair Credit Reporting Act (15 U.S.C. 1681a(f)) or the Federal Claims Collection Act of 1966 (31 U.S.C. 3701, *et seq.* ) as amended. The disclosure will be made in accordance with 31 U.S.C. 3711(e) when authorized by sections 204(f), 808(e) or 1631(b)(4) of the Social Security Act (42 U.S.C. 404(f), 1008(e) or 1383(b)(4)). The purpose of this disclosure is to aid in the collection of outstanding debts owed the Federal government, typically, to provide an incentive for debtors to repay delinquent Federal government debts by making these debts part of their credit records. The information to be disclosed is limited to the individual's name, address, SSN, and other information necessary to establish the individual's identity; the amount, status, and history of the debt and the Agency or program under which the debt arose. Policies and practices for storing, retrieving, accessing, retaining and disposing of records in the system: Storage: Records are maintained in magnetic media ( *e.g.* , magnetic tape) and in microform and microfiche form. Retrievability: Records are indexed and retrieved by SSN. Safeguards: Systems security for automated records has been established in accordance with the Systems Security Handbook. This includes maintaining all magnetic tapes and magnetic disks within an enclosure attended by security guards. Anyone entering or leaving that enclosure must have special badges which are only issued to authorized personnel. All authorized personnel having access to the magnetic records are subject to the penalties of the Privacy Act. The microfiche are stored in locked cabinets, and are accessible to employees only on a need-to-know basis. All SSR State Data Exchange records are protected in accordance with agreements between SSA and the respective States regarding confidentiality, use, and re-disclosure. Retention and disposal: Original input transaction tapes received which contain initial claims and posteligibility actions are retained indefinitely although these are processed as received and incorporated into processing tapes which are updated to the master SSR tape file on a monthly basis. All magnetic tapes appropriate to SSI information furnished to specified Federal, State, and local agencies for verification of eligibility for benefits and under section 1631(e) are retained, in accordance with the PA accounting requirements, for at least 5 years or the life of the record, whichever is longer. System manager(s) and address(es): Associate Commissioner, Office of Disability and Supplemental Security Income Systems (ODSSIS), Social Security Administration, 6401 Security Boulevard, Baltimore, Maryland 21235. Notification procedures: An individual can determine if this system contains a record about him/her by writing to or visiting any Social Security field office and providing his or her name and SSN. (Individuals should consult their local telephone directories for Social Security office address and telephone information.) Applicants for SVB who reside in the Philippines should contact VARO, Philippines. (Furnishing the SSN is voluntary, but it will make searching for an individual's record easier and prevent delay.) An individual requesting notification of records in person should provide the same information, as well as provide an identity document, preferably with a photograph, such as a driver's license or some other means of identification. If an individual does not have any identification documents sufficient to establish his/her identity, the individual must certify in writing that he/she is the person claimed to be and that he/she understands that the knowing and willful request for, or acquisition of, a record pertaining to another individual under false pretenses is a criminal offense. If notification is requested by telephone, an individual must verify his/her identity by providing identifying information that parallels the record to which notification is being requested. If it is determined that the identifying information provided by telephone is insufficient, the individual will be required to submit a request in writing or in person. If an individual is requesting information by telephone on behalf of another individual, the subject individual must be connected with SSA and the requesting individual in the same phone call. SSA will establish the subject individual's identity (his/her name, SSN, address, date of birth and place of birth along with one other piece of information such as mother's maiden name) and ask for his/her consent in providing information to the requesting individual. If a request for notification is submitted by mail, an individual must include a notarized statement to SSA to verify his/her identity or must certify in the request that he/she is the person claimed to be and that he/she understands that the knowing and willful request for, or acquisition of, a record pertaining to another individual under false pretenses is a criminal offense. These procedures are in accordance with SSA Regulations (20 CFR 401.40). Record access procedures: Same as Notification procedures. Requesters should also reasonably specify the record contents being sought. An individual who requests notification of, or access to, a medical record shall, at the time he or she makes the request, designate in writing a responsible representative who will be willing to review the record and inform the subject individual of its contents at the representative's discretion. A parent or guardian who requests notification of, or access to, a minor's medical record shall at the time he or she makes the request designate a physician or other health professional (other than a family member) who will be willing to review the record and inform the parent or guardian of its contents at the physician's or health professional's discretion. These procedures are in accordance with SSA Regulations (20 CFR 401.40(c) and 401.55)). Contesting record procedures: Same as Notification procedures. Requesters should also reasonably identify the record, specify the information they are contesting and state the corrective action sought and the reasons for the correction with supporting justification showing how the record is incomplete, untimely, inaccurate or irrelevant. These procedures are in accordance with SSA Regulations (20 CFR 401.65(a)). Record source categories: Data contained in the SSR are obtained for the most part from the applicant for SSI and SVB payments and are derived from the Claims Folders System, 60-0089 and the Modernized Supplemental Security Income Claims System. The States and other Federal agencies such as the Department of Veterans Affairs also provide data affecting the SSR. Systems exempted from certain provisions of the Privacy Act: None. [FR Doc. 05-4094 Filed 2-2-05; 8:45 am]

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